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Wednesday, November 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 |
| 11/20/18 | 2.23 | 2.39 | 2.51 | 2.67 | 2.79 | 2.83 | 2.88 | 2.97 | 3.06 | 3.22 | 3.31 |
| 11/21/18 | 2.25 | 2.41 | 2.52 | 2.67 | 2.81 | 2.84 | 2.89 | 2.98 | 3.06 | 3.22 | 3.31 |
| 11/23/18 | 2.25 | 2.41 | 2.52 | 2.67 | 2.81 | 2.83 | 2.88 | 2.97 | 3.05 | 3.21 | 3.31 |
| 11/26/18 | 2.24 | 2.41 | 2.54 | 2.70 | 2.84 | 2.86 | 2.90 | 2.98 | 3.07 | 3.22 | 3.32 |
| 11/27/18 | 2.31 | 2.41 | 2.53 | 2.70 | 2.83 | 2.86 | 2.89 | 2.98 | 3.06 | 3.22 | 3.32 |
Source: U.S. Department of the Treasury, as of 11/27/2018
Risk On - Risk Off
If you pay any attention to the financial networks, you will often hear them discuss either RISK ON or RISK OFF strategies. At times, this can be a little confusing. Simply put, RISK ON means that market participants are moving toward “riskier” assets (think equities) and RISK OFF means they are moving toward “riskless” assets, what we used to call a “Flight to Quality”. Unfortunately, these “strategies” seem to change on a whim, being “on” one day and “off” the next. As institutional portfolio managers, why should we care? While we shouldn’t care about the day-to-day talking heads, we need to pay very close attention to trends.
Trends provide context, and often give us an “early warning” of a bigger, more significant move. One of the more interesting recent developments has been the collapse in the price of GE Stock. GE used to be one of the few AAA rated companies in the world. Now it is just a tick above “junk bond” status. Its stock price fell by nearly 50% in the last 30+ days.
Trends provide context, and often give us an “early warning” of a bigger, more significant move. One of the more interesting recent developments has been the collapse in the price of GE Stock. GE used to be one of the few AAA rated companies in the world. Now it is just a tick above “junk bond” status. Its stock price fell by nearly 50% in the last 30+ days.
Source: Bloomberg 11/28/18
If you have been paying attention, you no doubt have also read about the “correction” in the FAANG’s (Facebook, Apple, Amazon, Netflix and Google). All have fallen by 20% or more from their 52 week high. There are other examples of course, but the questions remain: Is there a larger context to which we should be aware? Is there a potential collapse in private sector debt that may follow these stock prices? What might the implication be to that?
It might very well be that a “risk off” strategy or the traditional flight to quality would be triggered by additional problems in the private sector, and we will all wish we had added high quality, longer duration, non-optionable assets to our investment portfolios when rates were at or near their peaks.
A friendly reminder, pay attention to trends, and understand the implication for your own loan and investment portfolios.
If you have been paying attention, you no doubt have also read about the “correction” in the FAANG’s (Facebook, Apple, Amazon, Netflix and Google). All have fallen by 20% or more from their 52 week high. There are other examples of course, but the questions remain: Is there a larger context to which we should be aware? Is there a potential collapse in private sector debt that may follow these stock prices? What might the implication be to that?
It might very well be that a “risk off” strategy or the traditional flight to quality would be triggered by additional problems in the private sector, and we will all wish we had added high quality, longer duration, non-optionable assets to our investment portfolios when rates were at or near their peaks.
A friendly reminder, pay attention to trends, and understand the implication for your own loan and investment portfolios.
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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