Market Update: February 2018

investment advisory services historical yield and indic rates February 2018  

Future Fed Hikes Being Priced Into Market

The Fed Funds Futures market has almost fully priced in three rate hikes by the Fed in 2018.  The Treasury market is also pricing in future moves by the Federal Reserve as yields have increased considerably over the past two months. Treasuries with maturities between 2 years and 10 years have increased 30-40 basis points over this period. The dashed orange line in the chart below indicates where the market believes the Treasury yield curve will be on 2/1/2019 (Treasury futures).  This Treasury futures yield curve indicates that 2-year to 10-year Treasuries will only increase by another 3-22 basis points over the next year.

Source: Bloomberg

Strong 4th Quarter Growth

Stronger global economic growth in 2017 aligned with continued positive domestic developments to help accelerate U.S. growth deep into an economic recovery which began in 2009. At the same time, rising stock prices are lifting business and household optimism and spending. Investment in business equipment expanded at an 11.4% annual rate in the fourth quarter after a 10.8% growth rate in the third quarter while consumer spending rose at a solid 3.8% rate in the fourth quarter. Altogether, GDP rose at a 2.6% annual rate in the fourth quarter and output grew 2.5% in 2017, the highest level in three years. The Federal Reserve predicts similar GDP growth in 2018 at 2.5%.

Source: Wall Street Journal, Bloomberg

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