U.S interest rate markets had a topsy-turvy month. At mid-month the 10-year Treasury note yield spiked to 3.10%, before rapidly falling to 2.78% and finishing the month at 2.83%. The shape of the yield curve followed suit, initially steepening before flattening. At month-end, the 2-10 year spread was 43 basis points (bps), nearly unchanged from the prior month. T-bill yields exceeded the S&P dividend yield for the first time since the financial crisis. Interest rate volatility was a function of the market’s shifting focus among economic data and political events.
As the month began, oil prices were hitting their highest level since 2014 and the dollar was rallying. Equities were generally rising as earnings reports were strong. Mid-month, consumer and retail data were positive for growth (although in line with expectations), as was Purchasing Managers’ Index data. The Federal Reserve minutes were generally regarded as a bit more dovish. As the month came to a close, personal spending came in above market expectations.
On the political front, the biggest event of the month was the Italian election, which renewed fears of European Union instability, leading to something of a Brexit-like moment for the markets. The withdrawal of the U.S. from the Iran deal, on-again/off-again negotiations with North Korea, and more anxiety over potential trade wars also muddied the volatility waters.