Daily Spotlight

3Q Rate Review: Lower Across the Board

Interest-rate trends were in one direction in the third quarter: lower. At the short end of the yield curve (which has been influenced by the Fed's two federal funds rate cuts), three-month T-note yields ended the quarter at 1.90% versus 2.38% in 2Q and 2.44% in 1Q. At the long end, the 10-year T-bond yield ended 3Q at 1.75%, down from 2.0% at the end of 2Q and 2.40% in 1Q. We continue to watch the inversion of rates between the three-month T-bill and the 10-year T-bond, which often has signaled an economic recession in upcoming quarters. Looking ahead, we expect to see the curve resume a normal upward slope. At the short end, we expect one more rate cut from the Fed this year before the central bank moves to the sideline ahead of the U.S. presidential election in 2020. At the long end, we see competing forces (a slowing U.S. economy and low inflation, offset by improving global economic conditions and a general flow out of U.S. Treasuries) leading to somewhat higher rates. The Fed has shown that it will continue to take whatever actions are needed to keep the expansion growing. ...  economic recession in upcoming quarters. Looking ahead, we expect to see the curve resume a normal upward slope. At the short end, we expect one more rate cut from the Fed this year before the central bank moves to the sideline ahead of the U.S. presidential election in 2020. At the long end, we see competing forces (a slowing U.S. economy and low inflation, offset by improving global economic conditions and a general flow out of U.S. Treasuries) leading to somewhat higher rates. The Fed has shown that it will continue to take whatever actions are needed to keep the expansion growing.   more

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