Rates Fall In November – Fixed Income Update – December 2018

The recent trend in rising rates slowed in November as expectations intensified that the Fed may not raise as ambitiously in 2019 as initially projected. The yield on the 10-year Treasury bond fell from 3.24% at the beginning of the month to 3.01% at month’s end. The drop in rates may be interpreted by equity markets as either positive or negative.

Federal Reserve officials acknowledged the adoption of a more flexible process in gradually increasing rates in 2019, where a neutral rate is targeted. The so-called neutral stance taken by the Fed causes uncertainty as to how the Fed perceives the direction of economic growth, as the neutral rate generates monetary policy that is neither stimulative nor restrictive.

Many believe that the impact of the Fed’s rate hikes this year have not yet fully materialized, thus creating a neutral stance for the Fed to allow it time to decide.

Sources: U.S. Treasury Dept., Federal Reserve, U.S. Treasury




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