US Interest Rates Analysis Report 6/21/19 – 10 Yr Bond Rates Below 2%

Treasuries led a global bond rally, with 10-year yields dropping below 2% for the first time since November 2016 as expectations grow that major central banks will ease policy.

The U.S. 10-year yield slid as much as five basis points to 1.9719% after the Federal Reserve signaled it was ready to cut interest rates.

The Fed on Wednesday scrapped its use of “patient” in describing its approach to policy, offering support for bond bulls who argue that the U.S.-China trade war will sap growth momentum.

“You’ve got a Fed that’s now changed its language and we’re on a path where there’s going to be rate cuts ahead,” said Sham Devan, senior technical strategist at Citigroup Inc. in Singapore. “Whether it’s two or three times, it’s hard to say — but there will be cuts.”

Source

Every since the interest rate on the 10 year note peaked in 2018 at a little lower 3.2%, the yield has been on a steady decline falling over 100 basis point or a 40% decline over the past year. This is a huge change as it affects all aspects of our lives…from mortgage rates to the equity markets to bank savings accounts and CDs to our 401ks.

How does it affect our 401ks, quite simply, when the Markets rally, you do the happy dance because your 401k go up and when the Markets decline, you get concern because your 401k declined.

During a question-and-answer session Oct. 3, Fed Chairman Jerome Powell said the central bank was a long way from adopting a neutral rate of growth. The Markets didn’t like what Powell said and showed him by tanking.

Then in December, Powell said the Fed’s program to reduce the bond holdings on its balance sheet was on “autopilot.” Powell later went on and raised short-term rates another one-quarter percent. The Markets didn’t like what Powell said and showed him by tanking again.

At this point, the Markets had Fed Powell right where it wanted him. In early January, during a round table with Janet Yellen and Ben Bernanke, Powell said, there is no preset path for raising rates or adjusting the balance sheet. The Markets like what he had to say, eventually climbing 10%.

Then in late January, during the FOMC meeting, Powell said the case for raising rates has weakened somewhat. In addition, Powell made it very clear to the Markets and used the word “patient” eight times in his speech regarding hiking interest rates. The Markets like what he had to say and all the US equity markets rose between 1-2% for the day.

Now rates found themselves under 2.0% for the first time since 2016 after the FOMC meeting this week…and the Markets rally. However, based on the longer term chart on the yield of the 10 yr bond, the chart suggest the rally won’t last.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.