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Like a boxer after that knock-out punch, interest rates have tumbled over the last 2 quarters

Apr 01, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

  • The yield on the US 10-year bonds has cratered over the last 6 months as the outlook for the Fed has changed
  • Going into the fourth quarter of 2018 the market was sure there were more rate hikes coming from the Fed, with 25bp expected in December
  • The yield on the 10-year bond was 3.23% in early November

 

US 10-Year Bond Yield, 6 months

US 10 year bond yield

 

  • The outlook on rates changed with the release of some soft data during the quarter, yields slid
  • And slid.  It hit 2.68% at the end of the year. 

 

  • Like a limbo dancer, they kept dropping
  • How low can they go?

 

  • Strong data in the first quarter with dovish talk from the Fed sent yields lower still
  • 2.60%, 2.50%. 2.40%, then a 2.37% low, with a slight tick back up since the low
  • Lower rates a great news for a number of industries, home-builders especially
  • Mortage rates have tumbled, too, with 4% in reach for some home-buyers

 

  • There have been unconfirmed reports of home-builders CEO hugging Fed officials

 

  • There have been calls for even lower rates, with the loudest calls coming from White House officials
  • Fed officials for now seem content to wait and analyze data before making any further moves
  • What is clear right now in the US is:
    • Inflation is tame, the last PCE print was 1.8% annually, right in line with the Fed's 2% target
    • GDP growth is solid, but not over the top, at 2.2%, the latest revision

 

  • While the Fed may lower the limbo bar at some point, for now it's right where they want it

 

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