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
10/22/19	1.75	1.65	1.64	1.59	1.60	1.59	1.60	1.68	1.78	2.07	2.26
10/23/19	1.74	1.65	1.64	1.58	1.58	1.58	1.58	1.67	1.77	2.06	2.25
10/24/19	1.75	1.67	1.65	1.59	1.58	1.58	1.58	1.67	1.77	2.08	2.26
10/25/19	1.73	1.66	1.66	1.60	1.63	1.62	1.62	1.71	1.80	2.10	2.29
10/28/19	1.74	1.65	1.65	1.60	1.64	1.64	1.66	1.75	1.85	2.16	2.34

                                                                                                                                                     Source: U.S. Department of the Treasury, as of 10/28/2019

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By the time the close of business rolls around on Friday, we might have a clearer vision of where this record long expansions sits and what course of action the Fed may take. The list of closely watched economic releases includes:

• 10-29 Consumer Confidence Board Index     (prior 125.1 expected 128.0)
• 10-29 Pending Home Sales (M o M)              (prior 1.6% expected 0.8%)
• 10-29 GDP Annualized (Q o Q)                      (prior 2.0% survey 1.6%)
• 10-30 FOMC Rate Decision                            (prior 2.00% expected 1.75%)
• 11-01 Change in Nonfarm Payrolls                 (prior 136k expected 85k)

It is highly anticipated that the Fed will lower interest rates tomorrow for the third time since July, as the Fed Funds Futures market has the likelihood of a ¼ point cut at a whopping 92 percent probability.

Market participants will immediately look for indications of Fed moves to come, especially since there will be just one more meeting this year, on December 11th. Many market experts are predicting that the Fed will signal that any future rate cuts should not be “taken for granted” and will be dependent on renewed deterioration of economic data.

With the recent backup in yields, we are strongly advocating adding some duration to the portfolio in the form of discounted 15 and 20 year pools.

15-year 2.00% pools can now be purchased at slightly more than one point discount and 20-year 2.50% pools are also selling at a discount. As you can see below, the spread in the base case approaches 80 basis points and is within 6 basis points of the yield on 20 year 3.00% pools, without two points of premium exposure.
 

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.

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