Market Review

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.

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The Treasury market rally continued through the second quarter, fueled by fears of a global economic slowdown (particularly in manufacturing), softer domestic economic data, dovish responses from central banks, and perhaps most of all, continued uncertainty over the outcomes of U.S. trade disputes. 

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Rates went on a straight shot downward in May, with the 10-year Treasury note yield falling nearly 40 basis points (bps).  The yield curve, measured from 3 months to 10 years, inverted and stands at -15 bps. Ten- to 30-year spreads closed the month nearly unchanged at about 45 bps.

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April was a low volatility month for interest rates. The 10-year Treasury yield began to rise very late in March, peaking at 2.60% on April 17th. Rates changed course and closed the month at a 2.50%. The “mini-inversion” of the yield curve continued, with the 6-month to 3-year spread now at -15 basis points (bps). The much followed 2- to 10-year ended the month 9 bps steeper.
 
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What started out as a rather staid and uneventful first quarter of 2019 for the bond market quickly turned into a major rally in credit followed by a big move (down in yield) for Treasuries. The Federal Reserve Board completed its about face, with or without any egg on that face, depending on your point of view, and conceded that the global slowdown and lack of inflation pressure diminished the need for additional rate hikes. 

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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.  

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