Good news on the disinflation front has caused a colossal shift in the bond market. The 10-year treasury rate peaked at 5% on 10.19.23 and now sits at 4.1% just 49 days later. That is a big move, and we watch rates closely here at Warcap. Oil is now below $70 per barrel and the latest CPI (Consumer Price Index) read hit 3.24%, BELOW the long-term average of 3.28%. It is clear to me that the economic slowdown is upon us, and we are adjusting portfolios.
US 10-Year Treasury Rates
Monetary policy has been in a tightening phase for nearly two years now and the real rate as measured by the Fed Funds rate minus inflation now sits at a NEGATIVE 1.23%. In addition, the runoff in the Fed’s balance sheet is real as total holdings have decreased by $1.1 trillion over the last 18 months. The fervor now is when the Fed will cut rates, but in our world rates have already moved and we are locking in long-term debt for many clients. Conservative investors are thrilled to get a 6% fixed rate; this year, investors have that option for the first time in two decades. But that window is closing and locking in longer-term debt now is prudent for the investor seeking a return of principal rather than just a return on principal. We consider both and allocate every client accordingly.
Happy Holidays and as always, I appreciate your continued trust and confidence.