September 5, 2019
Short term rates have been stable at about 2.00% over the past couple of months but the longer the term the more rates have dropped since July 31 (when the Fed cut the federal funds rate by 25 basis points to 2.25%). 30 Year Treasuries dropped OVER a half percent (ten year money saw a similar decline) while one month bills went up four basis points. What a change in such a short period of time and way beyond what the “experts” were predicting. In fact, not too long ago most thought rates were going to go up two or three times this year. After the December 2018 rate hike, which by most accounts was probably a mistake, longer term rates around the world have dropped like a stone. The Fed has a meeting on September 17-18 and most expect a 25 or 50 basis point cut. The Federal Reserve’s Federal Funds Rate is currently 2.25%. The economy worldwide seems to be slowing and the trade tensions with China are adding more uncertainty. Most central banks have been cutting rates and several have gone negative. The German 10 year bond is a NEGATIVE .59%. You pay them .59% to hold their debt. The yield curve continues to be inverted with three month T-bills and 10 year Bonds at a negative 50 bps. As you know, an inverted yield curve has historically been a predictor of recession. But if the Fed cuts rates by 50 bps, problem solved… The dollar has become stronger since the first of the year with most major currencies.
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