November 2017 Market Review

Against a backdrop of generally positive economic news, enthusiasm over potential tax cuts, a roaring equity market, and an upward move in oil and commodity prices, the Treasury market had yet another month of limited volatility. Ten-year yields fell six basis points (bps) before rising to a 2.43% yield at month-end, just a few bps higher than the October close.

The bond market appears convinced that the Fed will raise the fed funds rate in December and be reasonably aggressive in 2018. While inflation expectations have begun to rise a bit, the market view is that future inflation will remain modest. Thus, the yield curve continued its flattening trend in earnest, with the 2- to 30-year spread falling some 25 bps.

Economic releases favored the growth story this month. Quarter-over-quarter GDP came in at an annualized rate of 3.3%. Consumer confidence, retail sales, and housing starts and sales were all above market expectations and reflected the strength of the consumer in the economy.

In other news, the House and Senate both passed their respective tax reform proposals so now we await the final version. Oil prices rose as OPEC and Russia agreed to an extension of supply cuts. The President nominated Federal Reserve Governor Powell to replace Janet Yellen as chairperson, a move viewed favorably by financial markets.

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