February was marked by a “risk on” environment, with stocks rallying, corporate spreads tightening, and oil prices rising--despite weak economic growth globally. Although the news was better in the U.S., data were not particularly strong until the last day of the month. Fourth quarter GDP posted a significant gain (2.6%) including an unexpected jump in business investment. On the news, the 10-year Treasury closed the month at a 2.69% yield. Only two weeks earlier, the market was rallying on the back of a weak retail sales number, with the 10-year hitting a monthly low of 2.65%.
Overall, Treasury rates saw limited volatility and closed out the month 4 to 7 basis points (bps) higher than the end of January. The yield curve (2 to 10 years) steepened by 3 bps. Importantly, inflation remains muted. TIPS breakevens rose by a modest amount in February.
The financial markets appeared to spend a good deal of time worrying about poor growth prospects for China, Germany, and the rest of Europe. Some reassurance came in the form of progress on U.S.-China trade talks. The Federal Reserve released minutes from its last meeting which confirmed what many believed: the course of future fed funds movement was uncertain at best. The fed funds futures market is predicting essentially no change for the remainder of 2019.