their profitability is being challenged. :cry:
http://online.wsj.com/article/SB20001424052748703471904576003880782571372.html#articleTabs%3Darticle
Historically low interest rates are starting to take a toll throughout the financial industry, presenting a potential downside to the Federal Reserve's aggressive efforts to reignite growth in the sluggish economy.
Rock-bottom rates are squeezing profit margins at banks that rely on the gap between what they charge borrowers and pay depositors. They also are hurting returns at pension funds already under mounting pressure to meet obligations to retirees, while making certain kinds of insurance more expensive as firms try to recoup earnings that are likely to shrink if the ultralow rates linger.
Two years of generally falling interest rates, along with the Fed's plan to buy as much as $900 billion of U.S. Treasurys through mid-2011 to keep bond rates low, have delivered a much-needed lift to borrowers such as companies, consumers, cities and states.
Still, "it is clear that there are costs," says Michael Cloherty, head of U.S. interest-rate strategy at RBC Capital Markets. "The question is whether the good done by low interest rates is enough to justify forcing people and institutions to incur these costs."
The sell-off on the bond market this week will do little to ease the stresses on many of these companies. Yields on 10- year Treasurys rose to 3.236% on Wednesday, where they were in June. That rate is extremely low by historical standards, and few analysts expect significant rate increases for the next year.
Such companies have been hurt by lower short-term and long-term interest rates, though short-term rates have had a bigger impact because of their ripple effect on a wide range of assets that includes corporate bonds.
Many U.S. banks have returned to health since the subprime-mortgage meltdown and recession. But chronically low interest rates are emerging as a challenge to their profitability.
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