Interest Rates Wreak Havoc With Investors, Home Buyers

According to a New York Times article, people who have saved for years, planning to retire on the interest from what they’ve put away, are having to put off retirement or even go back to work. Those who were using interest payments to settle bills are finding that they may have to dip into their principal, or perhaps find another source of income. And retirees who are already out of the job market are finding themselves punished by rates so low that they may have to go back to work – if they’re able.

Disgusted with bank rates, many are turning to Treasuries, where the constant inflow of money has driven down those rates too. Municipals are up, too; the entry of Goldman, Sachs into the retail bond market through a deal with Incapital may have come at just the right time, as investors are desperately seeking other investments with higher yields but not the perceived high risks of the stock market. Corporate bonds – higher risks but slightly higher returns – are also doing well, even though many corporations don’t even need the money; they’re issuing bonds because the rates are so low and are then sitting on the cash.

Some investors, and funds – particularly pension funds, says Ben Warwick of Sovereign Wealth Management, are checking out emerging markets debt – again, a higher-risk alternative but with the potential for higher returns. And last but not least, some investors are being driven back into the arms of junk bonds, with the high-yield junk bond market issuing the most bonds since 1995.