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Wednesday, July 7, 2021


Scott Carrithers

George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino
Jeff Goble • Nicole Burczyk • Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris
 Brian Schaff • Josh Kiefer • Robert Schuyler • Tom Toburen • Aaron Hemphill • Jared Willhoft

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
06/29/21 0.04 0.04 0.06 0.08 0.27 0.47 0.89 1.24 1.49 2.03 2.10
06/30/21 0.05 0.05 0.06 0.07 0.25 0.46 0.87 1.21 1.45 2.00 2.06
07/01/21 0.05 0.05 0.05 0.09 0.25 0.47 0.89 1.24 1.48 2.01 2.07
07/02/21 0.05 0.05 0.05 0.08 0.24 0.45 0.86 1.19 1.44 1.98 2.05
07/06/21 0.05 0.05 0.06 0.07 0.22 0.42 0.81 1.13 1.37 1.92 2.00
                Source: U.S. Department of Treasury as of 7/06/2021

If You’re Long, You’re …
Right.  So far.

It’s halftime for the calendar year and now is a good time to re-think the game plan for finishing strong in 2021. Unfortunately for investment portfolio managers, there’s a plethora of mixed signals, not the least of which is the bond market itself.

The graph below shows 2-year Treasury yields have been trading sideways since before the pandemic, ranging from only 10 to 18 bps, until recently.  On June 16, 2021, after the FOMC released its Dot Plot indicating a slight acceleration in its forecast for a less accommodative policy, the 2-year benchmark yield jumped to 27 bps and is currently trading a bit lower at 22 bps.
Contrast the uptick in 2-year rates with the 10-year Treasury yield, which climbed throughout 4Q20 and 1Q21, peaked at 1.74% on 3/31/21, and has declined since.  Yesterday, the 10-year benchmark yield traded as low as 1.34%, some 40 bps lower than its recent peak.  As such, the U.S. Treasury curve flattened more than 40 bps in 2Q21, after steepening almost 60 bps in 1Q21.  Surprisingly, this recent flattening occurred despite inflation measures that surged even more than expected.

Seemingly, most fixed-income investors are in agreement with Chairman Powell’s view that the current spike in inflation will prove transitory, allowing policy to remain more accommodative for longer.  

Inflation skeptics, however, may have noticed the Median National Rent climbed 9.2% in the first half of 2021 and further hikes of 7% to 10% are expected in the coming year, according to surveys from the New York Fed and Fannie Mae.  More importantly, a sustained run-up in rents is thought to be a “stickier” component of inflation that may prove to be a bigger challenge for the Federal Reserve Bank.

Commercial bankers in the skeptical camp may see the recent flattening of the curve as another opportunity to rein-in the duration of their investment portfolio, or possibly, to lengthen the duration of their borrowings.

Please let us know if we can assist you with a re-thinking of your game plan for the second half of 2021.


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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