Below please find a link to our monthly market perspective piece for December. This month we examine the impacts of the rapidly changing low interest rate environment.

1. Market Perspective – December 2016
Experience Insight Impact
biegelwaller.com
Overview: As 2016 draws to a close, we revisit the impact of low interest rates. 10-year U.S.
Treasuries have risen from a low yield this year of 1.36% to currently stand at almost 2.60%. The
impacts of such a move, much of it occurring since the election, have rattled fixed income
markets and currencies across the globe. Increasing rates are typically associated with improving
economic outlooks. This month we dive into the impact of low interest rates and why the
movement in rates is important for investors to monitor.
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2. Experience Insight Impact
Rising Interest Rates
When interest rates were
at record lows, global
economies increased their
debt levels to all-time
highs as ultra low interest
rates made servicing
record debts much easier.
Now that interest rates
have started to normalize,
the impact of rising rates
merits attention.
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Ten Year Treasury Yield

3. Experience Insight Impact
Higher Future Interest Expense
With the federal debt near record high levels, normalization of interest rates implies a substantial
increase on future interest expense, which in turn will exacerbate the federal deficit and the
national debt.
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Interest Expense
on Federal Debt
(Left)
Average Interest
Rate on Treasuries

4. Experience Insight Impact
Widening Yield Differentials Result In A Stronger U.S. Dollar
The divergence of Fed policy from other central banks whom are still loosening could also lead to a further
strengthening of the U.S. dollar. Rising U.S. yields result in widening yield differentials between Treasuries
and the sovereign debt of other countries. This could drive the dollar higher and may hurt U.S. corporate
profits and domestic equity markets. Almost 50% of S&P 500 revenues are generated from overseas sales.
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10-Year Government Bond Yield Differentials
U.S. – Japan
U.S. – Germany
U.S. – U.K.
U.S. – Italy
U.S. Elections

5. Experience Insight Impact
“Yield Proxy” Sector Equities Underperform
Equities of sectors that are “yield proxies” (i.e. dividend plays – Consumer Staples, Real
Estate, Utilities, Telecom) have underperformed the S&P 500 as bond yields (red line)
shot up following the U.S. elections.
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S&P 500 Relative Sector Performance
(Normalized to 11/8/16 = 100)
10-Year Yield
S&P 500
Real Estate
Staples
Utilities

6. Experience Insight Impact
Mortgage Rates on the Rise
Mortgage rates declined to record lows prior to the election and shot up to over the 4% level with the decline in the
bond market. The housing recovery has been a big contributor to growth. A sudden rise in mortgage rates may
interfere to this recovery since consumer spending contributes over 70% of GDP.
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30-Year Fixed Mortgage Rate
(National Average)

7. Market Perspective – December 2016
Experience Insight Impact
biegelwaller.com
Conclusion: Following the elections, the U.S. is rapidly transitioning away from a period of
extremely low interest rates. While the domestic equity markets have responded with upside
movement, international markets have gone in the opposite direction with currencies being a
driving force. The speed of the upward interest rate move may create some disruption to parts
of the economy, but rates are also signaling potential economic improvement. The economy and
Fed policy are moving in the right direction and we are monitoring potential offsetting factors.
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8. Experience Insight Impact
Disclaimer
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
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