Insights

The challenge in writing periodic market commentaries is often to make interesting what was essentially more of the same. Not a problem for 2020. It is difficult to overstate how extraordinary the year was. A pandemic, remote conferencing technology, and government economic policies created a sea of change that will be felt for years to come. 

The challenge in writing periodic market commentaries is often to make interesting what was essentially more of the same. Not a problem for 2020. It is difficult to overstate how extraordinary the year was. A pandemic, remote conferencing technology, and government economic policies created a sea of change that will be felt for years to come. 

 

The risk-on market continued largely unabated in November, sometimes bolstered by positive news and sometimes despite negative headlines. Perhaps most important to markets was the announcement of significant progress on Covid vaccines. 

The 10-year U.S. Treasury note yield had its biggest move in months, rising 20 basis points (bps) to 0.84%.  Likewise, the 30-year bond yield jumped by 18 bps to 1.64%. With short rates anchored at very low rates, the 2- to 30-year yield curve slope steepened by 15 bps.

During the summer months, the economy found its Covid-era footing. The nation, and indeed much of the world, learned to co-exist with the pandemic as infection rates declined from early peak and progress occurred in testing and vaccine development. Some segments of the economy were able to re-open at least partially, while others remain under siege. Virus-induced changes in lifestyles have created some economic winners – used car sales, suburban single-family housing, and online retail among them.

Short rates moved up modestly, and longer rates rose more significantly during August, producing negative total returns for Treasuries. The 5- to 30-year yield curve slope steepened by 22 basis points (bps).

Despite already low levels, U.S Treasury yields fell across the yield curve during July. Long rates fell the most, resulting in a flattening of the curve. TIPS break-even levels rose, as investors judged valuations as attractive given future inflation expectations. 
 
 

Let’s flash back to March 31 of this year. The planet is in the midst of a highly infectious and dangerous pandemic. Much of the world essentially closes, with the potential for Great Depression era economic statistics to be matched if not surpassed. Yet central banks have sprung into action, with the U.S. Federal Reserve taking the lead in providing liquidity and support to the markets. 

As the public health and economic fallout from Covid-19 continued, U.S. Treasury yields traded in a reasonably tight range during May. Ten-year yields stayed within a 12-basis point (bp) band, while 30-year yields kept to a 20 bp range. Twenty-year notes were issued by the federal government for the first time in many years, and the market gave the new paper a warm reception.  Ultimately, the 2- to 30-year yield curve slope steepened by 16 bps, as the short-end of the curve remained firmly anchored.

Federal Reserve Chair Powell indicated that they would use whatever tools available to support the economy during the COVID-19 pandemic. Concurrently, Congress and the administration continued to add to their dramatic fiscal response.