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Tuesday, August 28, 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 |
| 8/21/18 | 1.94 | 2.08 | 2.25 | 2.45 | 2.61 | 2.67 | 2.73 | 2.80 | 2.85 | 2.93 | 3.00 |
| 8/22/18 | 1.95 | 2.09 | 2.24 | 2.43 | 2.60 | 2.65 | 2.70 | 2.77 | 2.82 | 2.91 | 2.99 |
| 8/23/18 | 1.94 | 2.08 | 2.23 | 2.43 | 2.61 | 2.66 | 2.72 | 2.78 | 2.82 | 2.90 | 2.97 |
| 8/24/18 | 1.95 | 2.09 | 2.25 | 2.44 | 2.63 | 2.68 | 2.72 | 2.78 | 2.82 | 2.89 | 2.97 |
| 8/27/18 | 1.96 | 2.12 | 2.25 | 2.47 | 2.67 | 2.70 | 2.74 | 2.81 | 2.85 | 2.92 | 3.00 |
Source: U.S. Department of the Treasury, as of 08/27/2018
HOW MANY MORE?
The annual event that is the Central bank’s policy symposium in Jackson Hole Wyoming wrapped up last week with somewhat expected results. It is an almost certainty that at least one more Fed increase will take place at the Fed’s next meeting on September 26th.
In spite of President Trump’s criticism and other prominent objections, the Fed continues on a path to what the majority feels is a “neutral” Fed position after a decade of accommodative position. One of the outlier’s of the Fed stance is St Louis Fed’s President James Bullard, a voting member starting next year. Bullard believes that “There is no reason to challenge the yield curve at this time. Inflation is low, it is stable, and it is barely up to target. We don’t need to be preemptive on the yield curve”. Bullard went on to conclude, “I would rather not be calling rates accommodative right now, I think we are at neutral or very close to neutral” he said.
Bullard is in the minority, however when it comes future Fed decision making. Fed Chairman Powell offered up a defense of the Fed’s gradualist rate hike strategy. Powell feels, probably rightfully so, that the U.S. economy is fundamentally strong and the general expansion calls for continued increases.
“There is good reason to expect that this strong performance will continue” Powell said. “I believe that this gradual process of normalization remains appropriate”. The policy has its critics including President Donald Trump, who told Reuters in a recent interview that he was “not thrilled” with the Fed’s tightening.
As you can see from the Fed Fund futures chart below, it now projects an almost certain increase at the September 26th meeting, currently a 94.6% percent chance. It also has a 65 percent chance of an additional increase in December.
Source: Bloomberg
If those two occur we will be at 2.50% Funds target. Many believe that accommodation ends and neutral begins at 3.00%. That would coincide with 2% inflation and a 1% real return to the investor. Can it be that after a decade the market will no longer “punish” the short-term investors? We will see.
The annual event that is the Central bank’s policy symposium in Jackson Hole Wyoming wrapped up last week with somewhat expected results. It is an almost certainty that at least one more Fed increase will take place at the Fed’s next meeting on September 26th.
In spite of President Trump’s criticism and other prominent objections, the Fed continues on a path to what the majority feels is a “neutral” Fed position after a decade of accommodative position. One of the outlier’s of the Fed stance is St Louis Fed’s President James Bullard, a voting member starting next year. Bullard believes that “There is no reason to challenge the yield curve at this time. Inflation is low, it is stable, and it is barely up to target. We don’t need to be preemptive on the yield curve”. Bullard went on to conclude, “I would rather not be calling rates accommodative right now, I think we are at neutral or very close to neutral” he said.
Bullard is in the minority, however when it comes future Fed decision making. Fed Chairman Powell offered up a defense of the Fed’s gradualist rate hike strategy. Powell feels, probably rightfully so, that the U.S. economy is fundamentally strong and the general expansion calls for continued increases.
“There is good reason to expect that this strong performance will continue” Powell said. “I believe that this gradual process of normalization remains appropriate”. The policy has its critics including President Donald Trump, who told Reuters in a recent interview that he was “not thrilled” with the Fed’s tightening.
As you can see from the Fed Fund futures chart below, it now projects an almost certain increase at the September 26th meeting, currently a 94.6% percent chance. It also has a 65 percent chance of an additional increase in December.
Source: Bloomberg
If those two occur we will be at 2.50% Funds target. Many believe that accommodation ends and neutral begins at 3.00%. That would coincide with 2% inflation and a 1% real return to the investor. Can it be that after a decade the market will no longer “punish” the short-term investors? We will see.
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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