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.

As of this writing, there have been no new fiscal programs enacted since the Phase 3 CARES Act on March 27. Congress spent a portion of last week debating an expansion of the CARES Act. The Senate finished the week at an impasse, attempting to add $250 billion to the Paycheck Protection Program (PPP). Democrats sought more money for hospitals and state and local governments in exchange for passing a Republican proposal for more small-business loan funding.

In these quarterly pieces, we typically review the events - primarily economic events - of the past three months, their impact on the fixed income markets, and how our portfolios have been positioned. Today, we want to begin by expressing our fervent wish that you, our clients, friends and your families, are healthy and safe. The first three months of 2020 have been like no other.