The 10-year Treasury rate hovered in a stable range for most of January, but was book-ended by significant rallies at the beginning and end of the month. Weak data out of China and a lousy ISM Manufacturing report got the ball rolling on January 2. The rally ended quickly, as the employment report on the 4th helped positively change market sentiment. The Treasury market then traded in a tight range (10-year at 2.70% to 2.78%), and a “risk on” environment took hold in corporates. Near month-end, prompted in large degree by new found “patience” from the Fed, the 10-year yield fell over 10 basis points (bps). Month-over-month, the 2- to 10-year yield curve flattened by 3 basis points. TIPS break-evens moved higher.
The most noteworthy feature of the month was the market’s reaction to the Fed’s changing perspective on tighter monetary policy. The Fed’s view moved closer to that of the market’s where Fed Funds futures were pricing in virtually no rate cuts for 2019. The Fed noted global weakness and muted inflation, but also acknowledged a solid rate of domestic economic activity.