Interest Rates in Drift Lower Mode

Since we have all the euphoria of the “China Deal” behind us I guess there is no reason to drive interest rates higher (at least that is what the 10 year treasury is saying).

Previous to today when the “China Deal” came to the forefront rates would spike a few basis points higher as the talking heads would have us believe this is going to make GDP move bunches higher–something I don’t buy. Maybe the Chinese buy more from us–and maybe they don’t, but they can promise anything and do nothing–we will wait and see. Rates drifting lower tells me there are a lot of folks that are NOT buying the Chinese deal story.

The 10 year is now at 1.79%–off almost 3 basis points.

The FED REPO this morning was a $47.5 billion deal–the FED took Treasuries as collateral in the amount of $26.5 billion and $21 billion in agency mortgage collateral.

With a fairly large calendar of ex dividends yesterday we are seeing just a slight amount of give back in $25 baby bonds and preferreds stocks. 47 income issues went ex yesterday. Overall the average price is off 2 cents while investment grade preferreds are off 5 cents–maybe folks are tired of paying sky high prices for 4.75% coupons–I doubt it really.

4 thoughts on “Interest Rates in Drift Lower Mode”

  1. Hi Tim,
    Did you listen to the Dallas Fed Chair Kaplan talk about the neutral rate today at the NY Economics Club? He thought we would be at lower for longer given the slowing growth.
    Makes me wonder if should wake up at 6 in the morning tomorrow to buy those WFC issues…

    1. Hster–no I saw it but didn’t take the time to listen. I may buy some low coupon issues–but likely only looking for a 1-1.5% flip.

  2. I’m with you Tim, maybe they will and maybe they won’t stick to the deal. I am betting that they don’t, if history is any guide. Doing business with them is akin to doing business with Iran.

    I really wish this had been firmed up last year when there would have been less politics involved. I think our side had to weaken their knees just a bit after it rolled over into the election year. They had a stronger position last year, IMO.

    However, it’s progress for now and Mr. Market seems happy with it. But that can all change as we know, with a simple tweet or piece of rumor floated around.

    1. A4I–if nothing else this give markets a reason to Party On. I learned long ago you can’t fight these markets–you have to go with the flow.

      I would bet $10 that China reneges on the deal–but it will be out 6 months or a year–to get past some of the politics (elections).

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