Intrest rate Parity

Jun 28th, 2015
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I had passed it once or twice, a shop window of alluring little objects, magic balls, magic hens, wonderful cones, ventriloquist dolls, the material of the basket trick, packs of cards that looked all right, and all that sort of thing, but never had I thought of going in until one day, almost without warning, Gip hauled me by my finger right up to the window, and so conducted himself that there was nothing for it but to take him in. I had not thought the place was there, to tell the truth--a modest-sized frontage in Regent Street, between the picture shop and the place where the chicks run about just out of patent incubators, but there it was sure enough.

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What Determines Interest Rates?By John H. MakinThe pundits who have been predicting higherinterest rates based on large U.S. budget and current account deficits have some explaining todo. Beyond the fact that very little systematicempirical evidence exists of a close link betweendeficits of any kind and interest rates, manyhigh-profile commentators such as Robert Rubinand Pete Peterson, not to mention Pimcos BillGross, have consistently warned that long-terminterest rates would rise as Americas budget andcurrent account deficits rose. Actually, U.S. longterm interest rates have been fallingfrom 4.8percent in early June to 4.1 percent at year-end.Despite this stellar performance, Gross has evengone so far as to suggest that U.S. governmentliabilities should be downgraded from their toprating of AAA to AA.It is odd that the broad field of U.S. deficitbemoaners, including a former Treasury secretary, an immensely successful investor, and themanager of the worlds largest bond fund, havechosen to mislead the public on the major determinants of interest rates. In order to rationalizethe awkward fact that interest rates on ten-yearTreasury notes have gone

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