Fixed Income Market Commentary

Fixed Income

Fixed Income Market Commentary

Read the fixed income commentary from Executive Vice President Kevin Giddis.

July 17, 2018

The Treasury market is trading slightly higher this morning as investors await the Fed Chair’s testimony before Congress the next two days. While this is about the “biggest thing” going in the bond market these days, Congress may actually shift their attention away from the Fed and more towards comments made by the President in what was a very interesting press conference yesterday with Russian President Putin. But I digress. The parts of Powell’s testimony that the market will likely pay most attention to are the pace of tightening, the shape of the yield curve, the lack of wage inflation and the debt load required to keep the U.S. economy growing. The spread between the 2-year and the 10-year has tightened from roughly 70 basis points at the beginning of the year to 25 basis points this morning, and the market will be anxious to hear what the Fed’s stance is on that subject. Are we headed to an inversion, which would imply that a recession is not far behind, or is this just a function of a difference in where the Fed is on tightening and the market’s view on inflation? We all agree that the U.S. economy is strong, and that the policies are working, but to what expense and fallout is quite uncertain. The Fed’s view about global growth, the dollar, oil prices, and the future of productivity are also things that the market will be curious about, given that Congress will address those issues with the Fed chair. Away from the Fed, there isn’t too much else on the minds of traders. The economic data is not likely going to change one’s thinking, and there is little else to talk about other than where the Fed falls on interest rates and the yield curve. The forward view is that the Fed will raise rates likely two more times this year and three times in 2019. Personally, I find it difficult to see the Fed doing this unless you begin to see some real wage pressures, along with a surge in consumer demand. Neither of which seems likely in the next twelve months. 

The information contained herein is based on sources which we believe reliable but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities herein mentioned. This firm and/or its affiliates and/or individual shareholders and/or members of their families may have a position in the securities mentioned and may make purchases and/or sales of these securities from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Raymond James may also perform or seek to perform investment banking for entities referred to herein.

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