July 11, 2019
Rates continued their downward trajectory over the past month with medium and longer term rates dropping a whopping 40 basis points. Even the short term rates dropped about 20 basis points. The Federal Reserve’s Federal Funds Rate is 2.50%. But the market doesn’t care and all rates from short to long (except for the 30 year which is at 2.57%) are now lower than that target. Its no wonder they’re thinking of a rate cut of 25-50 bps later this month. The economy worldwide is slowing and the trade tensions with China are adding more fuel to the rate cut fire. And with inflation pressure still very mild while at the same time the US economy has been growing at 3.00+% over the past couple of quarters an “overheated” economy is not yet an issue. The ten year Treasury note sank below 2.00% at the beginning of the month and has stayed below 2.10% for the past four weeks. The yield curve is currently inverted with three month T-bills and 10 year Bonds at a negative 13 bps. As you know, an inverted yield curve has historically been a predictor of recession. But if the Fed cuts rates, problem solved… The dollar continues to be very stable with most major currencies.
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