Treasury yields dropped throughout Q3 of 2019, with the biggest decline being the 30-year. As of 9/23/19 the 30-year Treasury had fallen 40.4 bps to 2.127%. We also saw a record low on the 30-year when it closed at 1.951% on 8/27/19. The 10-year was also down 32.7 bps, to 1.679%, as of 9/23/19. The drop in yield across the Treasury curve was propelled by global recession fears, concerns about low inflation, and the ongoing trade war with China.
The market shifted focus to the 9/18/19 FOMC meeting to see if the Fed would cut rates at a second consecutive meeting and whether the cut would be another 25 bps or possibly a more aggressive 50 bps. The Fed elected to go with the market-consensus 25 bps cut, dropping the target fed funds range to 1.75–2.00%. The FOMC statement contained few changes, with business fixed investment and exports “weakening” and household spending “rising at a strong pace.” The characterization of inflation was unchanged, and growth continued to be described as “moderate.” The Fed also continued to emphasize that they will “act appropriately” to sustain the economic expansion, leaving future cuts on the table.
As the quarter closes, we are maintaining a defensive approach in the face of market uncertainty. As long as the trade war continues to weigh on the global economy, we expect to see volatility, while an agreement would likely send rates higher. In the meantime, we plan to be conservative while looking for opportunities moving forward.
Daniel Himelberger
Portfolio Manager & Fixed Income Analyst
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