Fixed Income Market Commentary

Fixed Income

Fixed Income Market Commentary

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

June 17, 2019

The Treasury market is trading slightly lower this morning as the bond and stock markets appear to be content with waiting on Wednesday’s FOMC Rate Decision before making too many rash moves in either direction. The economic data is beginning to now support the bond market’s view that the U.S. economy is slowing to the point that the Fed needs to make a move soon. While most economists don’t believe that a move will occur at this week’s meeting (25% chance), they are feeling pretty confident that the Fed will act next month (87% chance). The economic data leading up to the FOMC is a bit scarce, but we did get a weaker than expected June Empire Manufacturing Index (-8.6%). This leaves only tomorrow’s Housing Starts and Building Permits for the month of May left before the Fed meeting conclusion. Having said that, this has become a global game and both the ECB and the BOJ meet this week to discuss their own economies and what monetary policies are required to jumpstart growth. The ECB is holding its annual Symposium where Draghi will speak to the state of the European economy, and may give some hints to the market about the ECB’s declaration to do whatever it takes to assist its economic growth. The BOJ will meet on Thursday to discuss its long-running battle with low growth and even lower inflation, something that the U.S. has been compared to recently. While I am pretty confident that the U.S. has a long way to go to really be compared to the Japanese, the mere thought of it should be enough to get the Fed to seriously consider its next moves to monetary policy, whether or not we get a trade deal with China. Speaking of trade, each day we don’t have a deal hurts, and it is beginning to show in the numbers. While there is still time to fix this, there does come a point when the damage can’t be reversed, and economic growth and momentum are the likely casualties of a prolonged war. So as we tee up the FOMC meeting on Wednesday, the markets must look at the following: 1) Slow global growth which needs attention. 2) A trade war with no end in sight. 3) Low inflation. 4) Weakening domestic fundamental economic data. Based on those factors, can you really see higher rates on the horizon? Furthermore, based on what we are seeing, can the Fed really wait until July to ease? I based so much of my forecast on the U.S. and China working out their trade differences. In absence of that, I believe that we will soon blow through 2% on our way to 1.75% on the 10-year note. 


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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