| Thursday, August 8, 2019 |
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| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Kevin Doyle • Lonnie Harris • Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell |
| US Treasury Market | |||||||||||
| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 08/01/19 | 2.11 | 2.07 | 2.04 | 1.88 | 1.72 | 1.67 | 1.68 | 1.77 | 1.90 | 2.21 | 2.44 |
| 08/02/19 | 2.11 | 2.06 | 2.02 | 1.85 | 1.72 | 1.67 | 1.66 | 1.75 | 1.86 | 2.16 | 2.39 |
| 08/05/19 | 2.07 | 2.05 | 1.99 | 1.78 | 1.59 | 1.55 | 1.55 | 1.63 | 1.75 | 2.07 | 2.30 |
| 08/06/19 | 2.05 | 2.05 | 2.00 | 1.80 | 1.60 | 1.54 | 1.53 | 1.62 | 1.73 | 2.03 | 2.25 |
| 08/07/19 | 2.02 | 2.02 | 1.95 | 1.75 | 1.59 | 1.51 | 1.52 | 1.60 | 1.71 | 2.01 | 2.22 |
SLIPPERY SLOPE
Last month in our PMR, we highlighted Bob Michele’s (JPMorgan’s head fixed income CIO) prediction that the 10 year Treasury note could fall to zero. Although zero is probably a long shot, certainly the price movement of the past few weeks has probably made a believer out of more investors.
In fact, Pacific Investment Management Co. (PIMCO) has joined the chorus of voices warning that U.S. yields may have further to fall. Joachim Fels, a global economic advisor at PIMCO, states “It’s no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative”.
Yield is evaporating globally. In fact, at least 11 countries have negative 10-year yields which comprises part of a $14 trillion dollar negative yielding global pool.
Central banks seem to be in a race to see who can accommodate the quickest. India, Thailand and New Zealand all cut rates yesterday in a move to avert a slowdown. New Zealand’s cut was very surprising in that they cut a full 50 basis points even with their economy close to maximum employment…sound familiar?
Our rates appear to be headed to their quadrennial (every four years) pattern of lows, with those most recent lows in the summer of 2012 and 2016. Perhaps the explanation is that these dates are just prior to our presidential elections and thus the cause of uncertainty. As you can see from the chart below, yields are well on their way to perhaps a bottom next summer, again prior to the presidential election. The bottom of 1.359% on 7-8-2016 is certainly not out of the question.
In fact, Pacific Investment Management Co. (PIMCO) has joined the chorus of voices warning that U.S. yields may have further to fall. Joachim Fels, a global economic advisor at PIMCO, states “It’s no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative”.
Yield is evaporating globally. In fact, at least 11 countries have negative 10-year yields which comprises part of a $14 trillion dollar negative yielding global pool.
Central banks seem to be in a race to see who can accommodate the quickest. India, Thailand and New Zealand all cut rates yesterday in a move to avert a slowdown. New Zealand’s cut was very surprising in that they cut a full 50 basis points even with their economy close to maximum employment…sound familiar?
Our rates appear to be headed to their quadrennial (every four years) pattern of lows, with those most recent lows in the summer of 2012 and 2016. Perhaps the explanation is that these dates are just prior to our presidential elections and thus the cause of uncertainty. As you can see from the chart below, yields are well on their way to perhaps a bottom next summer, again prior to the presidential election. The bottom of 1.359% on 7-8-2016 is certainly not out of the question.
Source: Bloomberg
We still continue to see value in the municipal market which has not fully adjusted to the drop in Treasury yields. Below is an example:
Aa3 rated Adair County Iowa General Obligation UNLTD
2.00% due 6-1-2030 with a 6-1-2025 par call.
It’s 1.90% yield to call is 122 percent of Treasuries and its 1.944% YTM is 112 percent.
Settlement is set for 8-28-2019.
Please call your investment officer if you would like to discuss further.
Source:Bloomberg
All offerings are subject to prior sale and/or change in price.
Aa3 rated Adair County Iowa General Obligation UNLTD
2.00% due 6-1-2030 with a 6-1-2025 par call.
It’s 1.90% yield to call is 122 percent of Treasuries and its 1.944% YTM is 112 percent.
Settlement is set for 8-28-2019.
Please call your investment officer if you would like to discuss further.
Source:Bloomberg
All offerings are subject to prior sale and/or change in price.
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