By Tom Burnett CFA
On July 29, 2020, the Federal Reserve announced that its Governors had voted unanimously to leave the interest rates on short-term, fed funds unchanged at the range of 0-.25%. In its announcement, the Fed emphasized that the weak economic conditions are expected to continue well into 2021. Accordingly, the Fed intends to continue its purchases of Treasury and mortgage backed securities until the economy returns to its full strength. The Fed’s balance sheet assets are approaching $7.0 trillion, up from the $4.0 trillion level one year ago. The Fed signaled its intention to continue supporting the commercial paper, money market funds and the municipal markets throughout this difficult period.
Market rates were unchanged after the announcement, but Treasury rates have declined sharply this year. For example, the ten-year Note is now yielding 0.57%, down from 1.91% at the end of 2019. Similarly, the yield on the 30-year Bond is now 1.24%, down from 2.38% at the end of 2019. Most analysts now expect these low rates to continue well into 2021.
Tom Burnett CFA is Director of Research