For all the talk of rising rates, long-term interest rates continue to decline around the developed world. Disinflation concerns and signs of slowing global growth are dominating capital markets. Some investors and pundits are now looking to central banks to stop the madness in the markets. This is ironic as market bulls would retort harshly when critics would pose the possibility that it was the Fed and other central banks which were propping up markets. One can deny the truth all one wishes, but one cannot suppress the truth forever.

In spite of the rhetoric warning of spiking long-term rates, the yield of the 10-year UST note stood at 2.10% at the time of this writing. The yield of the 30-year U.S. government bond stood at 2.90%. On Tuesday, I opined that I expected yesterday’s 10-year UST auction would be strong, in spite of the fact that it was the second re-opening of the existing 10-year note. Re-openings tend to garner less interest, particularly from indirect bidders (which include foreign central banks).However, yesterday’s auction of $21 billion 10-year notes was met with strong demand, particularly from indirect bidders which purchased 71% of the new issuance, the strongest indirect bidder participation since November 2009 (the month in which QE1 was launched).

A combination of capital flight from troubled EM countries, a slowing (disinflationary) global economy and strong demographic-driven demand is helping to keep long-term bond yields/interest rates low.

Run with the Pack

The demand for high quality fixed income remains robust and is probably getting stronger. AB InBev’s (BUD) $46 billion bond offering, the proceeds of which will be used to finance its acquisition is SAB Miller (SBMRY), was met with demand I could only describe as “impressive.” The $46 billion was raised via seven bond issues with maturities ranging from three to 30 years. All tranches were well oversubscribed, Credit spreads over U.S. Treasuries ranged from +85 for the three-year trance to +205 for the 30-year tranche. Actual pricing (credit spreads) were significantly narrower than what was initially expected. This indicates strong investor demand. So much for concerns that investors could flee the fixed income markets due to “rising rates.”