Friday, March 22, 2019 |
||||||||
|---|---|---|---|---|---|---|---|---|
| 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 |
| 03/15/19 | 2.46 | 2.45 | 2.52 | 2.52 | 2.43 | 2.39 | 2.40 | 2.49 | 2.59 | 2.83 | 3.02 |
| 03/18/19 | 2.47 | 2.44 | 2.51 | 2.52 | 2.45 | 2.41 | 2.42 | 2.51 | 2.60 | 2.83 | 3.01 |
| 03/19/19 | 2.46 | 2.46 | 2.52 | 2.50 | 2.46 | 2.42 | 2.42 | 2.51 | 2.61 | 2.84 | 3.02 |
| 03/20/19 | 2.45 | 2.48 | 2.49 | 2.47 | 2.40 | 2.34 | 2.34 | 2.44 | 2.54 | 2.79 | 2.98 |
| 03/21/19 | 2.51 | 2.49 | 2.50 | 2.48 | 2.41 | 2.34 | 2.34 | 2.44 | 2.54 | 2.78 | 2.96 |
Source: U.S. Department of the Treasury, as of 03/22/2019
Treasury Spreads (Which One Do We Care About?)
Earlier this week, the Federal Reserve decided to leave rates unchanged. In addition to the news of a pause, they also projected no additional rate hikes for 2019. The Fed indicated it would also reduce the amount rolling off its balance sheet in May and end the program in September. The outlook for 2020 offers an expectation of rates rising by a mere 25 basis points. To change their view from two rate hikes in 2019 to zero and stopping the balance sheet unwind strategy later this fall, tells us they likely see this market cycle slowly coming to an end.
If we look at what the markets are telling us, specifically the yield curve, we see there are several points on the curve that have already inverted. Many financial markets will look at the spread between the 2-year Treasury and the 10-year Treasury. This spread, as of March 21st, was a paltry 12 basis points. However, this spread hasn’t always told us when a recession is on the horizon. According to the San Francisco Fed, an article they released in August 2018 points to the 3-month Treasury compared to the 10-year Treasury as the best indicator for a recession. We are currently at six basis points of spread between the 3-month and 10-year Treasury. Keep in mind an inverted yield curve doesn’t necessarily mean we are in or headed to a recession. In fact, an inverted yield curve often means that we are at the peak of the economic cycle. However, the inversion does point to a potential recession looming in the next 12 to 24 months. Taking steps now to position yourself for the natural market cycle will pay dividends when it means the most. We are here to help discuss strategies and little steps you might want to consider taking now to position yourself for the next market dip.
Here is the link to the article written by the San Francisco Fed. https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/information-in-yield-curve-about-future-recessions/
Treasury Spreads (Which One Do We Care About?)
Earlier this week, the Federal Reserve decided to leave rates unchanged. In addition to the news of a pause, they also projected no additional rate hikes for 2019. The Fed indicated it would also reduce the amount rolling off its balance sheet in May and end the program in September. The outlook for 2020 offers an expectation of rates rising by a mere 25 basis points. To change their view from two rate hikes in 2019 to zero and stopping the balance sheet unwind strategy later this fall, tells us they likely see this market cycle slowly coming to an end.
If we look at what the markets are telling us, specifically the yield curve, we see there are several points on the curve that have already inverted. Many financial markets will look at the spread between the 2-year Treasury and the 10-year Treasury. This spread, as of March 21st, was a paltry 12 basis points. However, this spread hasn’t always told us when a recession is on the horizon. According to the San Francisco Fed, an article they released in August 2018 points to the 3-month Treasury compared to the 10-year Treasury as the best indicator for a recession. We are currently at six basis points of spread between the 3-month and 10-year Treasury. Keep in mind an inverted yield curve doesn’t necessarily mean we are in or headed to a recession. In fact, an inverted yield curve often means that we are at the peak of the economic cycle. However, the inversion does point to a potential recession looming in the next 12 to 24 months. Taking steps now to position yourself for the natural market cycle will pay dividends when it means the most. We are here to help discuss strategies and little steps you might want to consider taking now to position yourself for the next market dip.
Here is the link to the article written by the San Francisco Fed. https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/information-in-yield-curve-about-future-recessions/
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