by Doug Drabik, Fixed Income, Raymond James
April 3, 2017
At the beginning of every year, there is a sense of optimism compelling many investors and seemingly most experts to predict a better, more robust and prosperous financial future. At least thatās the way itās gone the past several years. Now, the first quarter of 2017 is in the books. The new administrationās honeymoon is over. The market, which tends to trade on anticipation or the rumor, seems motionless awaiting the next directional indicator. Itās beginning to look a lot likeā¦ well, last year.
| Treasury Yields | 12/30/16 | 04/03/17 | Net Chg |
|---|---|---|---|
| 1mo | 0.416% | 0.730% | +31bp |
| 1yr | 0.811% | 1.106% | +20bp |
| 2yr | 1.188% | 1.260% | +7bp |
| 3yr | 1.451% | 1.486% | +4bp |
| 5yr | 1.927% | 1.908% | -2bp |
| 7yr | 2.245% | 2.195% | -5bp |
| 10yr | 2.444% | 2.380% | -6bp |
| 30yr | 3.065% | 3.016% | -5bp |
Source: Bloomberg LP, Raymond James
The Fed hike in mid-March has worked to keep short-term rates slightly higher than the close of 2016 but itās proving to have little influence on the mid part or longer-end of the curve. The market seemed to get ahead of itself propelled in large part by the enthusiasm of a new and promising change to the political front. What is beginning to sink in is that changes cannot occur overnight. Even in a best case scenario, it may take more than months or even years for implementation of new policies to take effect; however, donāt mark the scorecard just yet. Anticipation may have pushed too quickly but thereās a lot of time for much to unfold.
The economy may be in better standing than given credit. As a matter of fact, when future text refers back to the present, it may reveal an economic time period that is well-regarded. Although modest, the economy has provided one of the longest post-recession growth periods, near full-employment and restrained inflation. There is not a lot āwrongā with the economy but it has been met with numerous headwinds such as global rate disparity created by the struggling economies of most other economic powers worldwide.
It is difficult to be patient but doing so may be rewarding. We are a nation and generation of instant gratification stuck in a market that works on its own merits. The Fed and monetary policy are still driving while fiscal policy gradually and deliberately unfolds. The bond market has never been a sprint event but is more like a long-distance marathon. Nothing has really changed from the early year anticipations except perhaps the realization that it is not an overnight event.
Copyright Ā© Raymond James
