Concerns over weak global growth, the negative impact of trade disputes, very low and negative interest rates overseas, and low inflation are driving interest rate markets.Rate movements in July were generally subdued. The 10-year U.S. Treasury yield did a round trip, rising from 2% to 2.14% before closing the month back at a 2.00%. However, the 2-year yield rose by 14 basis points (bps), resulting in a flattening of the slope of the (2-to-10 year) yield curve.
The Federal Reserve was a key factor in July. The month began with dovish testimony to Congress by Chairman Powell. It was punctuated by a variety of opinions from Fed Board members and closed out with the Fed’s announcement of a 25 bp rate cut. Powell characterized the cut as a mid-cycle adjustment, leaving the market to debate the extent and pace of future cuts. Meanwhile, the U.S. economic data during July was largely positive. Better than expected employment, retail sales, durable goods, and personal consumption all highlighted the current conundrum faced by policymakers and investors.