The WSJ reported today that Norway’s central bank has joined the central bank of Australia in raising their short-term interest rates. Clearly these two countries have navigated their way through the credit crisis better than others. So why should you care?
When foreign countries raise interest rates they create higher yielding investment opportunities for investors relative to the US. As a result, the US fixed income market is forced to offer higher yields in order attract money. Therefore, as foreign countries begin to recover from the global financial downturn they will likely begin to raise rates. This, at least theoretically, will push interest rates higher in the US.
This is one more indicator that higher mortgage rates are in store moving forward.