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Thursday, September 20, 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 |
| 9/13/18 | 2.01 | 2.15 | 2.33 | 2.55 | 2.76 | 2.83 | 2.87 | 2.93 | 2.97 | 3.04 | 3.11 |
| 9/14/18 | 2.02 | 2.16 | 2.33 | 2.56 | 2.78 | 2.85 | 2.90 | 2.96 | 2.99 | 3.07 | 3.13 |
| 9/17/18 | 2.02 | 2.16 | 2.35 | 2.57 | 2.78 | 2.85 | 2.89 | 2.96 | 2.99 | 3.07 | 3.13 |
| 9/18/18 | 2.05 | 2.17 | 2.36 | 2.58 | 2.81 | 2.88 | 2.94 | 3.01 | 3.05 | 3.14 | 3.20 |
| 9/19/18 | 2.03 | 2.16 | 2.36 | 2.58 | 2.81 | 2.89 | 2.96 | 3.04 | 3.08 | 3.16 | 3.23 |
Source: U.S. Department of the Treasury, as of 09/19/2018
Movin' to the Groovin'
The U.S. Treasury 10 year yield continues to climb, quickly approaching the multi-year high of 3.11% seen in May of this year. For most of the summer, the 10 year traded in a 20bps range between 2.80-3.00%, and it was just a month ago that the note was testing the lower end of that range. On August 24th the S&P 500 regained its YTD high and has since managed to stay above that level.
It may be a mere coincidence that the U.S. Treasury 10 year yield has increased since the S&P made new highs. Though, there is something to be said about momentum, especially when there are fundamentals in place to support the move to higher rates – i.e. Fed hikes, Fed balance sheet reduction, increase in U.S. Treasury supply. Equities have a renewed bull market feel, largely ignoring recent trade war rhetoric and policy actions. Treasury yields were riding that wave as well, overlooking the slowdown in PMI and CPI numbers, and targeted the psychological 3.00%. Once breached, the momentum was there to continue moving.
Momentum is a funny thing that happens when a position of trades line up just right perpetuating increased trading and/or stop outs. So it moves to the groove just as the song says until it dies. My guess is that this song will play out until the FOMC meeting next week on Wednesday when a new summary of economic projections will be provided and Powell will have to answer all of the media’s doom and gloom questions on trade, failing emerging markets, and flattening yield curve.
Strategy: Whether the U.S. Treasury yield breaches the multi-year high of 3.11% or not, 2bps should not make the difference in whether to invest right now or not. Rates across the curve are at their multi-year highs or pretty close, presenting the best yields seen in years. Products across the board have cheapened and offer more yield because of the move higher in treasury yields. See what is needed for the portfolio (cash flow, added yield, income…) and take advantage of the higher rate environment.
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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