Wednesday, December 6, 2017 |
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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 |
| 11/29/17 | 1.17 | 1.29 | 1.45 | 1.61 | 1.78 | 1.86 | 2.09 | 2.27 | 2.37 | 2.62 | 2.81 |
| 11/30/17 | 1.14 | 1.27 | 1.44 | 1.62 | 1.78 | 1.90 | 2.14 | 2.31 | 2.42 | 2.65 | 2.83 |
| 12/01/17 | 1.14 | 1.27 | 1.45 | 1.62 | 1.78 | 1.90 | 2.13 | 2.28 | 2.37 | 2.58 | 2.76 |
| 12/04/17 | 1.16 | 1.29 | 1.45 | 1.66 | 1.80 | 1.93 | 2.15 | 2.29 | 2.37 | 2.58 | 2.77 |
| 12/05/17 | 1.21 | 1.30 | 1.48 | 1.64 | 1.83 | 1.94 | 2.15 | 2.28 | 2.36 | 2.55 | 2.73 |
Source: U.S. Department of the Treasury, as of 12/05/17
Revisiting Ten Years Ago….
A few things are very similar today. We are still in Afghanistan and Iraq. We have a Republican President in office. U. S. stock markets are very near all-time highs. The 10-year minus 2-year yield differential has dropped to about 52 basis points, almost exactly the same as it was in early December 2007, still upward sloping, but today’s yield curve is the flattest in 10 years. It appears to be trending toward a dreaded inversion, which would be unique at these historically low levels.
The last inversion occurred in the first half of 2007. Bad things followed in short order. The S & P 500 Index dropped about 55% from the peak in October of 2007 to the trough in March 2009. As the housing market collapse unfolded Fannie Mae and Freddie Mac were taken into Conservatorship by the U.S. in September of 2008, where they remain today. This was followed by the failure of Lehman Brothers. Stocks were in a free fall, unemployment more than doubled. Mr. Bernanke took the Fed’s target rate to 0-0.25% in December of 2008. The unprecedented policy move lasted seven years. It was accompanied by a blizzard of federal stimulus, including such acronyms as TARP, ARRA, and QE 1, 2 and 3. The latter ballooned the Fed’s balance sheet five times, buying longer dated Treasuries and Agency MBS securities. The latter was aimed primarily at the ailing housing market.
The policies had the effects of stabilizing the housing market and reducing the reported Unemployment rate to about 4%, about where it was before the financial crisis. The largest beneficiary appears to be the U.S. stock market, which has more than tripled from the bottom, over 8 ½ years ago.
One thing that hasn’t changed for decades, the Deficit. It rises every year and seems assured that 2018 will be no different. The country was stunned when the number reached $1 Trillion early in the Reagan years. It looks like $21 Trillion plus for 2018. It doesn’t seem to make much difference for the stock market or long term interest rates. It is true that with all the ups and downs since the early 1980’s the U.S. has been in a bull market in stocks and bonds for 35 years.
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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