The Fixed-Income Markets Are Looking for an Economic Slowdown

By Tom Burnett CFA
The trading activity in the bond market today (July 27, 2021) is decidedly one way—towards lower interest rates. The 30-year Treasury bond is currently trading at a yield of 1.89%, down from a March high of 2.45%. During the height of the Covid-19 outbreak, before vaccinations, in 2020 the yield traded at below 1.0%. Yields rose sharply as the stock market recovered and investors looked for explosive growth coming off the ‘lockdown’ bottoms. In the recent days, however, rates have reversed and are dropping sharply as investors focus on the possibility of a Covid-variant resurgence. Any such widespread transmission would lead to another slowdown and a reduced demand for credit accompanied by a lower rate environment.
Similarly, the 10-year Treasury market has seen material yield declines. The rate today is now 1.23%, down from 1.74% in March. The Federal Reserve is conducting a two-day meeting which will culminate on Wednesday with an announcement of current policy goals and expectations. All eyes will be on the Fed, as investors attempt to interpret the Fed statements to better analyze the expected interest rate trends and movements.

Tom Burnett CFA is Director of Research