Wednesday, January 29, 2020 |
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| 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 |
| 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 |
| 01/22/20 | 1.52 | 1.55 | 1.56 | 1.55 | 1.53 | 1.52 | 1.57 | 1.68 | 1.77 | 2.07 | 2.22 |
| 01/23/20 | 1.55 | 1.55 | 1.56 | 1.55 | 1.51 | 1.51 | 1.55 | 1.65 | 1.74 | 2.03 | 2.18 |
| 01/24/20 | 1.54 | 1.54 | 1.55 | 1.55 | 1.49 | 1.48 | 1.51 | 1.61 | 1.70 | 2.00 | 2.14 |
| 01/27/20 | 1.53 | 1.55 | 1.57 | 1.53 | 1.44 | 1.41 | 1.44 | 1.52 | 1.61 | 1.91 | 2.05 |
| 01/28/20 | 1.53 | 1.57 | 1.58 | 1.53 | 1.45 | 1.45 | 1.47 | 1.56 | 1.65 | 1.95 | 2.10 |
Source: U.S. Department of the Treasury, as of 01/28/2020
Steady As She Goes …
Later today, the Federal Open Market Committee is expected to confirm no change in its official benchmark rate, which has been targeted between 1.50% and 1.75% since last September.
Chairman Jerome Powell, along with most members of the committee, believe the U.S. economy is in a “good place” with low inflation and high employment. Given the consensus outlook for steady growth in the U.S. economy, combined with below target inflation, policy makers are seemingly not inclined to change the target rate any time soon. Both hawkish members on the committee (Evans from Chicago) and dovish members (Harker from Philadelphia) have indicated there may be no change in rates anytime this year.
Although policy makers are expected to maintain the status quo, serious Fed watchers will be looking for any change in policy guidelines used to achieve the inflation target. Given that inflation has persistently fallen short of the 2% target, placing a higher priority on achieving the target would require a more accommodative policy stance.
In light of this potential shift, as well as a growing list of possibilities that could require aggressive accommodation, fixed-income investors might want to consider locking-in longer rates, in an effort to bridge the trough of lower short rates ahead.
As you can see below, the Treasury yield curve has continued to flatten with a difference of only 18 bps between 2-year and 10-year Treasury notes. The bigger benefit, however, may be in locking-up today’s return with a declining cost of funding in the future.
Source: Bloomberg L.P.
Steady As She Goes …
Later today, the Federal Open Market Committee is expected to confirm no change in its official benchmark rate, which has been targeted between 1.50% and 1.75% since last September.
Chairman Jerome Powell, along with most members of the committee, believe the U.S. economy is in a “good place” with low inflation and high employment. Given the consensus outlook for steady growth in the U.S. economy, combined with below target inflation, policy makers are seemingly not inclined to change the target rate any time soon. Both hawkish members on the committee (Evans from Chicago) and dovish members (Harker from Philadelphia) have indicated there may be no change in rates anytime this year.
Although policy makers are expected to maintain the status quo, serious Fed watchers will be looking for any change in policy guidelines used to achieve the inflation target. Given that inflation has persistently fallen short of the 2% target, placing a higher priority on achieving the target would require a more accommodative policy stance.
In light of this potential shift, as well as a growing list of possibilities that could require aggressive accommodation, fixed-income investors might want to consider locking-in longer rates, in an effort to bridge the trough of lower short rates ahead.
As you can see below, the Treasury yield curve has continued to flatten with a difference of only 18 bps between 2-year and 10-year Treasury notes. The bigger benefit, however, may be in locking-up today’s return with a declining cost of funding in the future.
Source: Bloomberg L.P.
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