Falling Treasury Bond Yields and Rate Cut Expectations - June 5, 2019

First China, now there is the threat of steep tariffs on Mexican imports.

Impact: Stock market volatility and falling Treasury bond yields, as investors seek the safety of Treasuries (bond prices, yields move in opposite directions).

Odds of a recession by year-end remain low but have edged higher amid trade tensions that are slowing global trade flows and dampening business confidence.

Rate data

  • The 10-year Treasury yield has dropped from 3.24% in early November to 2.07% on June 3 (U.S. Treasury Dept).

The Fed says it’s on hold but has recently hinted it could consider a reduction in the Fed funds rate if data warrant such a move.

A key measure of sentiment from the CME Group is ahead of “FedSpeak.”

  • As of June 3, odds of a rate cut at the July 31 meeting were 61%, up from 20% a week prior.
  • There is an 85% chance of at least two rate cuts by December.
  • Odd of rate cut at the June 19 meeting remain low – 12%.

Note: fed funds projections can quickly change.

Investor’s corner

The economy is expanding today, but data suggest it has slowed from Q1.

Stalled negotiations with China and late Thursday’s surprise announcement of new tariffs on Mexican imports, if Mexico can’t get a handle on immigration into the U.S., has clouded the economic outlook.

Volatility (up or down) is likely to continue. A well-diversified investment portfolio takes many factors into account and helps reduce volatility while keeping you focused on long-term goals.