Source: US Dept. of Treasury End of Day
• Last week the market focused on the Fed meeting and Chairman Powell’s comments. Stocks and bonds both liked what they heard with stocks making new all-time highs while interest rates continued to decline. The two-year Treasury note declined 9 basis points during the week from a yield of 1.84% to 1.75%. The Dow Jones increased 630 points rising to an all time high of 26,806 before falling back slightly to finish the week at 26,719.
• The FOMC indicated that they will most likely lower rates at their next meeting in late July. The primary issue facing fixed income investors is that the yield curve is now pricing in at least three rate cuts this year with an expectation that the fed funds rate will be trading at 1.60% by year end.
• The bond market understands the Fed seldom cuts rates just once and then stops. The first rate cut has historically been followed by multiple cuts but is the market discounting in too much? The G20 meetings, additional negotiations with China regarding trade, and the June employment report will all occur before the next Fed meeting in late July. Some caution is warranted with current interest rates fully pricing in substantially lower yields.
