The financial markets just keep facing the same conundrum, over and over … and over. The common belief has been for years now that interest rates would rise, perhaps handily, when the Federal Reserve ends its bond buying and starts to raise interest rates. Despite the common belief remaining in place that the Fed will begin raising interest rates in 2015, it almost seems illogical on the surface that interest rates would be falling rather than rising.

On top of that, interest rates in Europe and the United States are hitting the lows of 2014 — with the fear of a 10% stock market correction looking more fruitful each day.

There are several things happening at once here. First is Europe, both in a slowing economy and in deflationary pressure. We noted recently that Mario Draghi has started to sound like a defeated man that has no bullets left to create stimulus. Russian sanctions have taken their toll, and Germany seems more interested in balanced budgets than anything.

October will officially be the end of the Fed’s bond buying activities. The real question is what to think about interest rate hikes next year, even more so than when the Fed will start slowly selling a portion of what is getting close to a $4.5 trillion balance sheet. Fed Funds futures had been factoring in rate hikes by June of 2015 in previous weeks, but the new Fed Funds futures are now not pricing in a 100% certainty of a 0.25% Fed Funds rate until September of 2015.

U.S. Treasury Bond rate for the two-year note was 0.37% on late Tuesday. The two-year note had previous yields of 0.50% last week and 0.56% in the past month. Germany’s yield is negative, literally, at -0.05% now. The U.K. yield is 0.60% for its two-year note.

The U.S. 10-year note had a yield of 2.20% late Tuesday. The yield was previously 2.34% last week and 2.61% in the last month. Overseas, the Germany bund yield is now only 0.84% and the U.K. gilt yield 2.13%.

The U.S. 30-year long bond had a yield of 2.95% late on Tuesday. The yield was previously 3.05% last week and 3.34% in the last month. Against Europe, this compares to a yield of only 1.76% in German bunds and 2.86% in U.K. gilts.

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