In what is beginning to sound like a broken record, the global credit crisis kept interest rates at historically low levels throughout 2011 and the Federal Reserve is determined to keep rates extremely low for the foreseeable future. In other words, not a lot has improved in the global economy over the last two years.
Although 2011 began with hopes that the Fed’s second round of quantitative easing (QE2) would lead to a sustainable recovery in the United States, the reemergence of sovereign debt problems in Europe quickly dashed any optimism that was beginning to take root.
Additionally, the summer of 2011 saw the United States mired in political gridlock over the nation’s budget deficit, which resulted in Standard & Poor’s dropping the United States’ credit rating to AA+ and Moody’s and Fitch placing the country on negative outlook (see "Who’d a thought?" below).
As we enter 2012, although we recently have seen improving indicators about the health of the U.S. economy, none of the issues that plagued 2011 have been resolved and most are in an even more egregious state. Looking ahead, analysts we spoke with expect the European sovereign debt crisis, the Fed and the U.S. budget to continue to drive the U.S. Treasury markets.