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Wednesday, April 4, 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
3/27/18 1.69 1.77 1.93 2.10 2.26 2.39 2.58 2.70 2.78 2.90 3.03
3/28/19 1.65 1.73 1.95 2.12 2.28 2.41 2.59 2.72 2.77 2.89 3.01
3/29/18 1.63 1.73 1.93 2.09 2.27 2.39 2.56 2.68 2.74 2.85 2.97
4/2/18 1.68 1.77 1.92 2.08 2.25 2.37 2.55 2.67 2.73 2.85 2.97
4/3/18 1.70 1.75 1.92 2.09 2.28 2.41 2.60 2.73 2.79 2.90 3.02

                                                                                      Source: U.S. Department of the Treasury, as of 4/3/18  



Sooner or Later, Something’s Gotta Give …
 
Yesterday’s PMR acknowledged the possibility of a further flattening in the benchmark yield curve which, if it happens, would be a continuation of the trend in place since 2013.

As always, there are a myriad of factors affecting the expected supply of and the demand for U.S. Treasury securities across the curve.  One such factor relates to the surge in consumer debt and concerns for the impact of rising rates.

Thanks to rising employment, increasing confidence and tax cuts ahead, the economic outlook is generally upbeat. With housing prices higher than ever and stock prices recently in record territory, the wealth effect has logically spurred consumer spending.

The spending splurge, however, appears to be increasingly funded by debt. As indicated by the chart below, the volume of consumer credit has ratcheted up, while the personal savings rate, relative to disposable income, has collapsed. 

After seven years at zero percent, the overnight target rate has been gradually increased to 1.75%, which is still quite low by historical standards.  Nonetheless, the chart below suggests consumer behavior will have to change at some point, as disposable income fails to keep pace with the rising cost of borrowing.


Source: Bloomberg 4/3/18
 

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