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Fixed Income Market Commentary by Kevin Giddis

February 19, 2019

The Treasury market is trading slightly lower this morning as bond investors try to make sense of the current “state of things” and what any of this has to do with interest rates. If this reads like one could be a bit confused, you are probably correct. The current market isn’t a market that needs a microscope; it’s more like a market that needs a telescope! What I mean by that is there is very little to learn by the current economic data that is going to lead you to make some big decisions in your portfolio. Still confused? Ok. We know that the Fed is likely on the sidelines until something big in the economy occurs. What would that be? It would likely take a huge change to U.S. inflation or some outsized economic growth. Neither are likely to occur, so you may want to take those off the table. In the absence of that, almost everything else that could happen would likely mean lower interest rates. We are past the stage of saying that Europe is experiencing slower growth. They are in an active fight to avoid a recession, and it is apparent by the decline in the euro vs. the dollar.  Then there is almost anything that happens in Washington. Whether it’s the President and his challenges or the virtual gridlock that has been achieved by the Republicans losing the House last year. There is just enough of this to keep almost anything from happening until the next election, an election in which almost everyone has announced that they are a candidate!  Then there is the U.S. economy, which is still growing, but at a lower rate and showing some telltale signs of weakening further with each piece of more current data. Most of the releases this week are mainly to “catch-up” from the government shutdown, so I don’t know how much the market is going to react to December’s data in late February. We will get the minutes from last month’s FOMC meeting and we will get Existing Home Sales for January later in the week, but that is about all we can expect out of the data. Speaking of the Fed, while there isn’t a zero percent chance that they will raise rates this year; the market’s current expectation is that they will sit tight for all of 2019. So this likely means that if we don’t get a trade deal or we can’t break free from the benign economic data, the direction of interest rates is probably slightly lower, and without much in terms of volatility. It’s the holiday gift equivalent of a pair of socks. Enjoy.


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