Thursday, May 31, 2018
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 • Gus Koppen

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
5/23/18	1.76	1.92	2.11	2.29	2.53	2.67	2.83	2.95	3.01	3.09	3.17
5/24/18	1.74	1.91	2.09	2.28	2.50	2.65	2.82	2.93	2.98	3.06	3.13
5/25/18	1.70	1.90	2.07	2.27	2.48	2.60	2.76	2.88	2.93	3.01	3.09
5/29/18	1.77	1.93	2.06	2.17	2.32	2.43	2.58	2.71	2.77	2.87	2.96
5/30/18	1.77	1.94	2.08	2.23	2.42	2.53	2.67	2.79	2.84	2.93	3.01

                                                                                      Source: U.S. Department of the Treasury, as of 05/30/18  

Will the Long End of the Curve Follow the Short End Higher?
 
If the long end of the curve is to move higher in response to Fed tightening, it is imperative that there be some sense of inflation in the overall economy. This morning some of these inflation indices were released. PCE Deflator (Personal Consumption Expenditures) came in at just 2.0% YOY and the Core PCE was just 1.8%.
These numbers do not suggest that the middle to longer maturities (> 5Y) are poised to move dramatically higher.
We have mentioned in this space the importance of an increasing Velocity of Money (Hat Tip Irving Fischer) to increasing inflation expectations and GDP. That hasn’t yet turned the corner, until it does, prospects for higher long term rates seem remote.
This time COULD be different, but so far, not so much…

PCE

                                                                                                                           Source: Bloomberg
 

GDP

                                                                                                                                               Source: Bloomberg

Velocity of M2

                                                                                                                                               Source: Bloomberg

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