Strong Economic Reports Move Interest Rates Higher

The combination of a strong jobs report 2 Fridays ago and very strong retail sales being reported today have worked to move interest rates higher–for now. The 10 year treasury yield moved as high as 2.14% before settling back to around 2.11% right now. Remember it traded as low as 1.95% on 7/3/2019.

It seems to me that the most recent “data” would argue for the FED holding the Fed Funds rate steady–but from recent testimony to congress we think that once again the FED has backed themselves into a corner and will have to lower rates 1/4%.

“Talking our book” we would be quite happy to see no rate hike. Our money market right now is yielding 2.24% (Gabelli US Treasury money market-GABXX) and we are happy with that yield–to go back to the sub-2% area will certainly make our life a bit more difficult as we chase higher returns.

Of course when we look at the global economies–Europe in a slow motion slide and China slowing bringing many negative rates we know darned well the Fed will move rates lower.

19 thoughts on “Strong Economic Reports Move Interest Rates Higher”

  1. WASHINGTON – The leading economic index fell 0.3% in June to mark the biggest decline in three years, suggesting U.S. growth is likely to be softer in the months ahead. “As the U.S. economy enters its 11th year of expansion, the longest in U.S. history, the LEI suggests growth is likely to remain slow in the second half of the year,” said Ataman Ozyildirim, director of business cycles research at the board. The decline in June, however, appears to be a bit of an anomaly. Weekly jobless claims spiked in June, but have since fallen again. And manufacturing orders and housing permits were unusually weak last month, suggesting a rebound might be in the cards soon. A measure of current conditions rose 0.1% and a ” lagging” index climbed 0.6%. The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.

  2. Fidelity’s sweep money market accounts are yielding around 2% Not the best but you don’t have to initiate trades every time cash comes into your account. The money just sweeps into the vehicle. Symbol: FZFXX

  3. In TDA , you choose your acct. to hold free cash. Mine is a ‘sweep’ into a money market acct ( Insured Deposit Acct ) paying less than 1%, but over the course of a year, it is a minimal amount because I am usually fully invested or close to it.

      1. @2whireroses
        Thanks for info. I have had my account at TDA when it was still
        Waterhouse Securities. The miniscule amount I would earn by changing to another sweep vehicle is insignificant as I rarely hold cash for more than a few days; I don’t hold free cash waiting for a
        ‘bargain’ or an IPO. If I need money, I just sell part or all of a holding., which of course I can use immediately to make a purchase. It’s just my preference to to be fully invested. I currently have less than $1300 in cash, so you get the idea. I can make a sale to fund a purchase in minutes if I wish to. This Fri the call of CPE-A will add immediate cash that I will use to make a purchase the same day or on Monday. We are talking pennies a day to change to a different sweep vehicle. Those who hold many $thousands of course benefit from an additional few basis points . Thanks

  4. Tim – Out of curiosity, do you hold GABXX outside of your brokerage accounts? And also excuse my brain cloud for not coming up with the proper terminology, but is it a money market account that automatically has money flowing in and out of it as you make trades that use the cash in it? GABXX is not offered at Fidelity but may be at TDA….

    1. Do you mean a ‘bank sweep account’ 2WR?

      In a bank sweep, your brokerage automatically rakes together and deposits your spare cash in one or more banks. Banks hand the brokerage a hefty fee, and the brokerage hands you some crumbs. For any given investor, a few dollars from dividends or interest income don’t amount to much. Rolled together with idle cash from thousands of other investors, they can add up to millions.

      1. Affinity4Investing–the Gabelli MM I am referring to is in eTrade and is not a “sweep” – you must do a buy and/or sell and it settles end of day.

        My Fido accounts have a “sweep” money market–Fidelity Government Cash Reserves–now at 2.05%.

        1. I use the etrade premium savings account to hold my cash. If I am going to purchase something I do a money transfer into which ever account I want to buy in(I have 3 in etrade). It shows up immediately in my trading account. It currently pays 2.1%. Is there a benefit to using a Money Market instead? Cant money markets fluctuate down? I am not trading daily, perhaps once a week so there is little hassle for me doing it that way.

      2. Thanks A4I….. age must be creeping in I guess…. Naturally I know the term “sweep” and its meaning but it just wasn’t making it thru my brain cloud. I’ve already lived on an island with an active volcano, but perhaps I’m now ripe for Waponi Woo…. How’s that for an obscure movie reference?

    2. 2whiteroses–no it is in eTrade (IRA)–and you must “buy and sell”–not a sweep. So I just put a limited amount in there

      1. Hi Tim, I just started putting my spare cash in SWVXX which is a money fund (I am with Schwab) that I have to buy and sell out of. Its yield is 2.17%.

        I just looked up GABXX and it looks like it’s the same situation….i.e….. if I buy something on a Monday, I have to sell out of the fund on that Monday or Tuesday so everything settles on Wednesday.

        In other words, can you sell out of GABXX with a one day settlement?

        1. Tim, we were posting at the same time so I saw your answer above. Interestingly, your sweep account pays 2.05%. That seems nicely high for a sweep account. I think the sweep account that I’ve been using for a couple years pays 0.3%

        2. Amy, depending on your state tax rate, you may want to consider SNVXX instead of SWVXX. For me it gives a few BP higher after tax yield.

          BTW, Vanguard usually has the highest MM rates of any brokerage:
          https://investor.vanguard.com/mutual-funds/list?filterAllAssetClasses=false&filterMoneyMarket=true&filterFiftyThousandAndUp=true&filterLowCostInvestor=true#/mutual-funds/asset-class/month-end-returns

          There’s been a lot of hoopla lately about Wealthfront Cash @ 2.57%: https://www.wealthfront.com/cash

          1. Hi David,

            Thanks for the suggestion. I’m in California so I will look at and compare both funds.

            Like Howard, I don’t keep much in cash as I prefer to stay fully invested. Therefore, the sweep accounts have always worked for me but since there’s nothing much to buy these days, I have moved into a “buy/sell” money fund. It’s a bit of an added step when I want to trade but I’m going to try it for awhile.

      2. Thanks, Tim… For the same purpose, I keep a savings account at CIT Bank…. Right now it yields 2.27% with a 2.30% APR.

        1. You could look at JPST – JPMorgan Ultra short gov’t bond fund. I believe the yield is 2.5x%

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