There are a few reasons why interest rates fall -- the primary one is a lack of inflation, or even a deflationary condition. We witnessed this not long ago on a couple of occasions, as you see in the attached chart.
In 2011, we saw the benchmark 10-year bond sink from 3.5% to barely 1.5% over an 18-month period, then a decline from 3% that started in the beginning of 2014 and ended near 1% in middled 2016. The Fed was trying its best to stoke some inflation with its many QE programs, and the rest of the world followed suit.
That seemed to work fine, but now the world is awash in debt, with the can continually kicked down the road. At some point, the many trillions of dollars will have the be dealt with, but for now the bandaids are still fresh.
Back to interest rates. Recently, the 10-year bond hit a multi-year high of 3.25%, scaring everyone out there, who feared inflation was starting to take hold. Frankly, the Fed has been trying to stoke some inflation, so let's give them a "mission accomplished" on this goal (so far).
One thought: With a steep drop recently in the 10-year bond, there is an appetite for fixed income, which is interesting, as supply continues to hit the market (Fed is selling, so are the Chinese and the Treasury releases record amounts of notes/bonds). Imagine how steep the curve might be if these sellers were not present. Long bonds once again around 1%? Quite possible.
What's next for rates? The Fed has a big meeting with a press conference coming up just before Christmas, and all the sudden there seems a debate of whether they raise or not. I don't think it's a close call here, they will raise rates without much difficulty, but perhaps signal a slowdown of their intent to raise rates more than once. That word might soothe the equity markets a bit, which have been in whipsaw mode for a couple of months now.
The signal from such a statement may be taken poorly though, with an emphasis on slower growth down the road as a need for easier policy. It's a double-edged sword.
