question-mark-signWhen Will The Fed Raise Rates?

So, when exactly is the Federal Reserve going to increase the rate for overnight borrowing that they have held at the zero bound for 5 years (and counting)?

It’s a question that has plagued bond investors throughout the first quarter of 2015. In January, 10-year Treasury yields fell as low as 1.6 percent. Early in March, they rose to about 2.2 percent before falling back below 2.0 percent. The Financial Times reported:

“Higher volatility is typical when markets are on the cusp of a major turning point, and that has been the story so far this year for U.S. Treasury debt… The year has already been characterized by big swings in bond yields, which move inversely with prices… The lack of a clear signal over when policy shifts towards a tightening phase may provide the central bank with greater flexibility but does not quell the uncertainty facing investors.”

In recent weeks, Fed Chairwoman Janet Yellen indicated the timing and pace of a rate change would be determined by economic data. In general, the Fed considers a variety of employment and inflation measures when determining policy. The Times suggested bond markets have priced out the possibility of a June rate hike, although several Federal Reserve officials recently said a June increase is still under consideration.

U.S. stock markets reflected investor uncertainty last week, too. Turmoil in the Middle East sparked concern an oil price reversal could occur if supply is disrupted. In addition, investors worried weaker-than-expected economic data might indicate U.S. economic growth was slowing. The Commerce Department reported business investment spending plans fell for the sixth straight month. That could result in reduced expectations for first quarter growth, as well as delay a Fed rate increase. Stock markets showed signs of life late in the week but finished lower.


Data as of 3/27/15

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-2.2%

0.1%

11.5%

13.4%

11.9%

5.8%

10-year Treasury Note (Yield Only)

2.0

NA

2.7

2.2

3.9

4.6

Gold (per ounce)

1.1

-0.3

-7.7

-10.9

1.6

10.9

Bloomberg Commodity Index

-0.2

-4.8

-26.2

-11.6

-5.5

-4.6

DJ Equity All REIT Total Return Index

-2.9

3.7

23.9

14.1

15.0

9.6

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* “When Will The Fed Raise Rates”

Sources:

http://www.ft.com/cms/s/0/3e2b4588-d161-11e4-86c8-00144feab7de.html#axzz3VhLz3iE7 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-30-15_FinancialTimes-Fed_Policy_Puzzle_Puts_Treasuries_on_Edge-Footnote_1.pdf)

http://www.reuters.com/article/2015/03/27/usa-fed-yellen-idUSL2N0WT22420150327

http://www.wsj.com/articles/ten-year-u-s-bond-yields-rise-before-auction-1427376150 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-30-15_WSJ-US_Government_Bonds_Sell_Off_After_Weak_Auction-Footnote_3.pdf)

http://www.reuters.com/article/2015/03/26/us-markets-global-idUSKBN0ML2UK20150326

http://www.reuters.com/article/2015/03/25/us-markets-global-idUSKBN0ML01C20150325

[gravityform id="5" title="false" description="false" ajax="true"]
[gravityform id="4" title="false" description="false" ajax="true"]