How low can interest rates go? The answer likely depends on how much the US economy slows in coming months and how aggressively the Federal Reserve responds.
As our graph shows, the benchmark 10-year Treasury note yield still hasn’t fallen as far as it did in summer 2016, or even in July 2012 when Washington was playing chicken with the possibility of a first ever US government default. But given investors’ reaction so far to data merely indicating pockets of economic weakness, rates could head a lot lower and fast if things really do soften up.
Interest rates’ most recent nosedive has sharply reversed what had been a gradual backup in corporate borrowing costs. That’s created yet another compelling opportunity for companies to refinance maturing debt, in many cases extending maturities and cutting interest costs simultaneously.
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