From deputy governor Guy Debelle today:
Today I am going to talk about some issues around risk and return in a low rate environment, in line with the theme of the conference. I am going to highlight questions that strike me as worth asking about the way return and risk are reflected in the current configuration of asset prices. I will suggest some considerations worth thinking about in trying to answer those questions from the investor side. I will also describe how issuers have adjusted their strategies to avail themselves of the low rate environment.
One of the main points I would like to make is that the low interest rate structure underpins many asset prices. That is, asset prices which might look expensive are more reasonably priced given that the rate structure currently is at historically low levels. So in my view, a fundamental question that you need to think about as an investor is: will the current rate structure remain at these levels, or will it return to the higher levels we have seen in the past? If the rate structure remains near historic lows, then valuations can persist. But if it rises, then asset valuations need to be reassessed. The second and related question is: what is the risk that such a shift in the rate structure occurs and am I being adequately compensated for that risk?
Low Interest Rates
