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Tuesday, November 20, 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
11/13/18 2.24 2.38 2.53 2.72 2.89 2.95 2.99 3.07 3.14 3.28 3.36
11/14/18 2.24 2.38 2.52 2.71 2.86 2.92 2.95 3.04 3.12 3.26 3.35
11/15/18 2.20 2.37 2.51 2.70 2.86 2.91 2.94 3.02 3.11 3.27 3.36
11/16/18 2.21 2.36 2.50 2.68 2.81 2.85 2.90 2.99 3.08 3.23 3.33
11/19/18 2.23 2.38 2.52 2.66 2.79 2.82 2.87 2.97 3.06 3.22 3.32
                                                                                                                                       Source: U.S. Department of the Treasury, as of 11/19/2018

Deflation?
 
Just when we thought that the world was going to be a perfect place, inflation at 2 percent and the Fed able to continue to raise rates well into 2019, October happened.  It started on October 3rd when Chairman Powell stated that monetary policy was still boosting the economy and probably was “a long way from neutral” and in fact may need to turn restrictive.

Take a look at the first chart below. It is the Dow Jones Industrial Average.  As you can see it is approximately 2,000 points off its October 3rd high.  Should the equity markets continue this performance, the Fed might have to give considerable thought to slowing its “march to neutral and beyond”.


Source:  Bloomberg 11/19/18

Now, take a look at this second chart below.  It is the price of crude, which does not get as much press as the various equity markets, but is a crucial component of inflation or the lack thereof.  Incredibly, oil is approximately $20 dollars off its highs of, again, October 3rd.  That is a 26 percent drop from its $76.24 high.


Source:  Bloomberg 11/19/18

Should numbers like these continue, the Fed’s focus might very well be deflation, not inflation? All of this has not been lost on the fixed-income markets.  The 10-year Treasury note is now 18 basis points lower than where it stood on November 8th, while the 5-year Treasury note has dropped by 23 basis points during that identical timeframe.

Even though rates are off their highs, there are still attractive options in the discounted callable segment of our marketplace.  Please note this FHLMC 2.50% due 6-9-2021.  It gets over 3% for a 30 month commitment with a chance to profit greatly should the Fed be forced to do an about-face.



Source:  Bloomberg 11/19/18
 
                                                                                                                                                                                                                                                   


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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