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Thursday, November 29, 2018 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 11/21/18 | 2.25 | 2.41 | 2.52 | 2.67 | 2.81 | 2.84 | 2.89 | 2.98 | 3.06 | 3.22 | 3.31 |
| 11/23/18 | 2.25 | 2.41 | 2.52 | 2.67 | 2.81 | 2.83 | 2.88 | 2.97 | 3.05 | 3.21 | 3.31 |
| 11/26/18 | 2.24 | 2.41 | 2.54 | 2.70 | 2.84 | 2.86 | 2.90 | 2.98 | 3.07 | 3.22 | 3.32 |
| 11/27/18 | 2.31 | 2.41 | 2.53 | 2.70 | 2.83 | 2.86 | 2.89 | 2.98 | 3.06 | 3.22 | 3.32 |
| 11/28/18 | 2.31 | 2.40 | 2.53 | 2.69 | 2.81 | 2.84 | 2.87 | 2.97 | 3.06 | 3.23 | 3.34 |
Source: U.S. Department of the Treasury, as of 11/28/2018
Fed Speak - Are they done?
Yesterday, Chairman Jerome Powell (Jay, to his friends) gave a much anticipated speech to the Economic Club of New York on the “status” of the current monetary policy. As Bloomberg notes: “In what was seen as a shift in tone from remarks last month, Powell said Wednesday that the Fed’s series of rate increases had brought policy to ‘just below’ the range of estimates of neutral.” Many have interpreted this as an indication that many of the rate hikes anticipated in 2019 would be “off the table” for the time being. Most observers have believed there would be as many as 4 rate hikes in 2019, speculation now centers on 2 or fewer.
As expected, both bond and stock markets rallied on this news. Stocks on the belief that current policy may eventually lead to a lower cost of capital, and bonds on the prospect of lower interest rates in general. A point we have made in this publication over the last several weeks is to anticipate the next cycle by extending durations on new investments in the securities portfolio. By “building a bridge” over the next low(er) rate cycle you can increase income generated from the investment portfolio as the other parts of the balance sheet adjust to these new levels. Whatever the case, it appears as though we may be closer to the end of this recent Fed Policy cycle, than to the beginning. Time is ripe for at least beginning the discussions as to what balance sheet strategies should be in play if rates do plateau. Our decision matrix is a good source for discussion topics.
As expected, both bond and stock markets rallied on this news. Stocks on the belief that current policy may eventually lead to a lower cost of capital, and bonds on the prospect of lower interest rates in general. A point we have made in this publication over the last several weeks is to anticipate the next cycle by extending durations on new investments in the securities portfolio. By “building a bridge” over the next low(er) rate cycle you can increase income generated from the investment portfolio as the other parts of the balance sheet adjust to these new levels. Whatever the case, it appears as though we may be closer to the end of this recent Fed Policy cycle, than to the beginning. Time is ripe for at least beginning the discussions as to what balance sheet strategies should be in play if rates do plateau. Our decision matrix is a good source for discussion topics.
Also, Look at the bond below for a good, high quality investment with higher yields and slightly longer duration as a possible addition to your portfolio.
- FNMA BM1971
- 2.3MM Original Face /1.94MM Current Face
- Seasoned 20Y 3.50%
- Price = 100.50 = 3.37% Yld @ Base Case / 5.4Y Avg Life (4.7Y Duration)
- Loans in Pool: 79,933 / Avg Loan Size = 188,072
Thank you for your continued confidence in us. Call any of us here if we can help in any way.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value