Fixed Income Market Commentary

Fixed Income

Fixed Income Market Commentary

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

March 25, 2019

The Treasury market is trading slightly lower this morning as demand for risk-off assets eases…at least for now. There are likely factors related to this action, but I plan to steer clear of them for now. Let’s just say that some of the market’s concerns may have been alleviated for now. This week’s focus will be mostly on the fundamentals and a slew of data that will be released all week, beginning with tomorrow’s Housing Starts and Building Permits. Those numbers tend to be leading economic indicators and may give us a clue of where the U.S. economy is headed. On Wednesday we will get the Trade Balance for the month of January, which should give the market some idea as to whether the trade gap is narrowing, even without a deal with China. Thursday brings us 4th quarter GDP, and on Friday we will get Personal Income and Spending for February along with New Home Sales, the University of Michigan’s Consumer Sentiment Index, and the all-important PCE Core. While this number is for January, it still has the potential to be a market-mover for its ties to inflation. The expectation is for an up 0.2% move in the first month of the year, which would keep the year-over-year number at 1.9%. The market’s interest would likely be enhanced if we saw a move up or down from that base expectation. Those are the economic highlights, but that isn’t all. The Treasury will be in the market selling $40 billion of 2-year notes on Tuesday, $41 billion of 5-year notes on Wednesday and $32 billion 7-year notes on Thursday. These auctions are worth watching because last week we saw the 3-month bill invert to the 10-year note, and it remains that way today, albeit bouncing back and forth. So what does that mean? It means that all along the way, this has always been an INFLATION story and those who have ignored or discounted this have paid a steep price. This isn’t about predicting recessions, and this isn’t something that is just around the corner. This is a historic fundamental change in the way that commerce is conducted, when the power and control has shifted to the consumer on its timeline and price point. Because of that, investors aren’t worried about investing in U.S. government debt longer than 5 years, and if there is a recession, it’s just a bonus for the investment! Soon we all will agree. 


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