Treasurys May Have to Wait For Resolution in 2019
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.