| Tuesday, July 25, 2017 | ||||||||
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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 |
| 7/18/17 | .95 | 1.07 | 1.11 | 1.19 | 1.36 | 1.52 | 1.82 | 2.08 | 2.27 | 2.61 | 2.85 |
| 7/19/17 | .99 | 1.11 | 1.12 | 1.23 | 1.37 | 1.52 | 1.83 | 2.09 | 2.27 | 2.61 | 2.85 |
| 7/20/17 | 1.00 | 1.15 | 1.12 | 1.22 | 1.37 | 1.51 | 1.82 | 2.08 | 2.27 | 2.60 | 2.83 |
| 7/21/17 | 1.00 | 1.16 | 1.10 | 1.22 | 1.36 | 1.50 | 1.81 | 2.05 | 2.24 | 2.57 | 2.81 |
| 7/24/17 | 1.00 | 1.17 | 1.12 | 1.23 | 1.37 | 1.53 | 1.83 | 2.07 | 2.26 | 2.59 | 2.83 |
Source: U.S. Department of the Treasury, as of 7/24/17
Today’s Topic: Higher for Longer …?
The Trump bump in U.S. bond yields has nearly evaporated, as long term Treasury yields are about 13% lower than in December. Likewise, the Trump bump in the U.S. Dollar Index (DXY) is about 9% lower than its December peak. In contrast, U.S. stock indices are sharply higher than in December and trading at record levels. Surely stock prices are overdue for a major correction.
Not necessarily, according to David Rosenberg, economist and author of Lower for Longer Lingers, July 2017. Rosenberg believes the single most important driver of investment returns over the next decade will continue to be … demographics.
Rosenberg points-out the first of the baby boomers turned 70 years old last year and that some 1.5 million will be doing so each year for the next fifteen years, referring to this bulge as the proverbial pig-in-the-python.
Throughout the 1960s, 1970s and 1980s, the younger boomers drove the growth in consumption and inflation. Having crossed over that mountain, older boomers will slow the aggregate growth of incomes and spending, exacerbating deflationary pressures in the economy and ensuring bond yields remain extremely low.
Given the prospects of living longer, and the cost of retiring in comfort, many boomers will be pressed into working longer. They’ll also be pressured to rethink their mix of investments, given their escalating need for reliable and recurring cash flows, according to Rosenberg.
Government bonds no longer provide adequate income flows. The equity market now fills this role, with dividend yields significantly higher than traditional government bonds.
Lower economic growth, lower inflation and lower bond yields will continue to increase the demand for income equity securities, resulting in equity valuations that will likely be higher for longer.
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.
•Not FDIC Insured •No Bank Guarantee •May Lose Value