| Wednesday, October 18, 2023 |
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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 |
| 10/11/23 | 5.41 | 5.50 | 5.56 | 5.37 | 4.98 | 4.75 | 4.58 | 4.59 | 4.56 | 4.90 | 4.70 |
| 10/12/23 | 5.41 | 5.51 | 5.57 | 5.41 | 5.07 | 4.85 | 4.69 | 4.72 | 4.70 | 5.06 | 4.86 |
| 10/13/23 | 5.39 | 5.49 | 5.56 | 5.39 | 5.05 | 4.81 | 4.64 | 4.65 | 4.61 | 4.96 | 4.75 |
| 10/16/23 | 5.41 | 5.49 | 5.57 | 5.42 | 5.10 | 4.87 | 4.71 | 4.73 | 4.70 | 5.07 | 4.85 |
| 10/17/23 | 5.41 | 5.50 | 5.57 | 5.47 | 5.21 | 5.01 | 4.86 | 4.88 | 4.83 | 5.15 | 4.92 |
The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is always subject to change. This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, L.L.P. As of: close of business 10/17/2023.
Fed Funds Complacency and Ancient Bond History
I get it… the Fed Funds rate is attractive…. and at 5.25% it’s easy to park excess deposits overnight and delay investment decisions. Doing nothing, however, is in fact a decision made. Only time will tell if stockpiling funds will be a winning strategy or if staying invested will be the better choice. A look back in history to another inflationary time, however, may provide some insight. As they say history often repeats itself and, in the investment world, at the very least it often rhymes.
Let’s travel back to the fall of 1981, shown in the graph below. Other than the yields themselves, it was a time remarkably similar to today. Fed Chairman Paul Volcker was trying to win the inflation war, the yield curve was inverted and banks had ceased portfolio purchases choosing instead to keep excess liquidity in Fed Funds. And why not, right? After all, why would you buy the two year Treasury at 16.75% or the five year Note at 16.10% when you can get 17.50% overnight?
US TREASURY CURVE 9/1/1981
Source: Bloomberg
Shown below is the Treasury curve exactly one year later and it reminds me of a great line by Matthew Broderick from the movie Ferris Bueller’s Day Off. “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” Well, many portfolio managers did miss it back then and regretted it for years after as Fed Funds had dropped 6.25%, the 2 year Treasury was 4.75% lower and the 5 year was lower as well by 3.50%.
ONE YEAR LATER … US TREASURY CURVE 9/1/1982
Source: Bloomberg
If you are a subscriber to the “higher for longer” scenario, well you’re probably not even still reading this missive. But if you believe the yield curve inversion is speaking to lower rates on the horizon and if you believe the Fed Funds Futures market has some credibility in forecasting rate cuts in 2024, then this Portfolio Manager’s Report may have been of some benefit to you. At the very least, don’t let Fed Funds complacency lull you to sleep. As Ferris once said, “You could miss it.”
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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