Yields slipped and fell again yesterday as investors shed risk in favor of Treasuries. The two-year fell below .9% intraday but most of the rally was concentrated in the long end. The most recent shift in the curve has been pretty parallel, meaning that even though yields have crashed down in the past few weeks the shape of the curve has remained about the same. While Fed policy expectations have driven the short end lower inflation expectations have taken a step back and lowered longer yields also.
The market carefully studied the August 12 FOMC meeting minutes yesterday, looking for any new information on how the Fed is gauging the recovery, among other things.
Here are some bond market specific highlights from the release:
· The decline in capital investment appears to be moderating. The contraction in industrial production showed signs of slowing and factory utilization recorded a new low in June.
· TIPS liquidity is poor, probably caused by summer holidays, but has resulted in moves in the TIPS markets that may say more about liquidity premium/discount movement than actual shifts in inflation expectations.
· Credit spreads have fallen below the peaks set in the previous recession. It’s pretty incredible to see how well credit has done since March only to now reach normal recession levels.
Cliff J. Reynolds Jr., Investment Analyst
The market carefully studied the August 12 FOMC meeting minutes yesterday, looking for any new information on how the Fed is gauging the recovery, among other things.
Here are some bond market specific highlights from the release:
· The decline in capital investment appears to be moderating. The contraction in industrial production showed signs of slowing and factory utilization recorded a new low in June.
· TIPS liquidity is poor, probably caused by summer holidays, but has resulted in moves in the TIPS markets that may say more about liquidity premium/discount movement than actual shifts in inflation expectations.
· Credit spreads have fallen below the peaks set in the previous recession. It’s pretty incredible to see how well credit has done since March only to now reach normal recession levels.
Cliff J. Reynolds Jr., Investment Analyst
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