To be sure, there are other factors behind why rates are likely to remain low for long. For instance, in a recent post, my colleague Rick Rieder writes about how technological change is one reason why Federal Reserve (Fed) rate hikes are likely to lead to lower rates than in previous rate normalization cycles.
As for what this rate backdrop means for investors, a sustained environment of low yields has significant repercussions, particularly at a time when, as the baby boom retires, more and more investors are looking for income. At the very least, it suggests that investors will still need to consider sourcing income from alternative sources. This includes accepting more risk and looking at more esoteric parts of the bond market—emerging market debt, for example—as well as other asset classes, from equities to alternatives.
Like most trends, this one will eventually end, although the sluggish nature of the recovery and deflationary forces suggest it may last into the end of the decade. In the meantime, there are benefits to this environment to keep in mind too, including support for equity multiples as well as the potential for higher corporate profit margins.
Source: BlackRock research
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.