By Tom Burnett CFA
The accommodative policies of the Federal Reserve appear to be having their intended impact on market interest rates. We follow closely the levels and trends of the Treasury securities since they form the most liquid segment of the fixed-income market. The FED has made it clear that it will not be raising short-term rates until 2022. In addition, the FED is actively supporting the commercial paper, money market funds, and municipal markets with generous supplies of liquidity. This market easing has enabled the Treasury to finance the growing U.S. budget deficit with little upward pressure on interest rates. In addition, according to the “Wall Street Journal”, corporations have raised over $800 billion from fresh debt offerings so far
The ten-year and the 30-year Treasury bond yields reflect these current FED goals. For example, the yield on the ten-year bond is now 0.57%, down from 1.91% at the end of 2019 and over 2.0% a year ago. The 30-year bond is now yielding 1.26%, down from 2.39% at the end of 2019 and 2.63% a year ago. Accordingly, mortgage rates for long-term loans are now being offered at levels below 3.0%. Many analysts fear that the government deficits and easy-money FED policies will lead to an inflationary breakout that will push rates higher, but for now, the picture is clear—low interest rates are the prominent factor in today’s financial markets.
Tom Burnett CFA is Director of Research