Trea­surys May Have to Wait For Res­o­lu­tion in 2019

The Bond Buyer - - Market News -

Fi­nan­cial mar­kets have room for im­prove­ment in 2019. It’s less clear ex­actly what might pull in­vestor sen­ti­ment and Trea­sury yields off cur­rent lows

Risk-averse trad­ing in De­cem­ber –which is on track to be the worst month for U.S. stocks since the 2008 cri­sis – has dragged the bench­mark 10-year Trea­sury yield down to 2.73%. That’s more than half a per­cent­age point be­low its 2018 peak in Oc­to­ber. In­vestors are re­spond­ing to tight­en­ing fi­nan­cial con­di­tions and a sour­ing eco­nomic out­look, and some are con­cerned the Fed­eral Re­serve may be headed for fur­ther rate hikes.

Pla­cat­ing fi­nan­cial mar­kets may not be on Fed Chair­man Jerome Pow­ell’s list of New Year’s res­o­lu­tions, but in­vestors will be on alert when he joins his pre­de­ces­sors for an in­ter­view this Fri­day at the Amer­i­can Eco­nomic As­so­ci­a­tion meet­ing.

Jef­feries’ Thomas Simons doesn’t ex­pect the Fed chief to sud­denly start wring­ing his hands over the re­cent volatil­ity in stocks. But an­other way to calm mar­kets would be to note weak in­fla­tion, par­tic­u­larly if the Fed is lean­ing to­ward a pause in its rate-hike cy­cle.

“That could be an un­der-the-ta­ble sig­nal that they were not go­ing to be rais­ing rates,” said Simons, a money-mar­kets econ­o­mist in New York, who ex­pects the Fed to hold rates steady in the first quar­ter.

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