Interest Rates' Effect on Investor Psychology

(4/12/22) The recent surge in interest rates must be viewed in context: This IS one of the largest draw downs in Bond prices--and rate hikes--in quite some time. But rates are only back where they were in 2019--pre-Pandemic shutdown: Houses were selling (there was a "shortage") and consumers were spending. Post-pandemic, home buyers are "being shut out" because of current rates (at the same 2019 levels); what's the difference? Rising rates are affecting higher debt loans than we had in 2019. Higher interest rates have two impacts on consumers: They cannot buy more stuff, and so contract spending, leading to slower economic growth; and consumers note that higher rates have eventually come back down, thus delaying purchases until rates are lower. Waiting to make consumption also leads to slower economic activity. Historically, when rates are more than three standard deviations oversold (where we are, currently), it has marked a peak in rates, which always leads to lower rates as a risk-off phenomenon hits financial systems. Today, as the Fed hastens to hike rates because of surging inflation, rates have already tightened (as witnessed in slowing housing sales and consumer spending). This price action in bonds is the best buying opportunity we've seen in 40-years.
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