Wednesday, Jan 25

The Most Important Thing Today (1/25/23)

Proactive communication about what’s going on in the market and the economy is key to building stronger client relationships. Each week, the Helios team breaks down the most important information your clients need into easy-to-understand talking points for you to share.

Let's talk about Treasury Yields!

The Bond Market Doesn’t Believe the Fed

What’s happening: The 2-year treasury yield has fallen from its peak of 4.72% to 4.23% as of January 23, 2023.

Why that’s interesting: The yield on 2-year treasuries has long been viewed as a leading indicator for the Federal Funds rate. The last 8 years have confirmed this view. As you can see on the chart, the 2-year yield tends to move in advance of the Fed’s upper target rate.

What’s next: Presently, there appears to be a break in that relationship. Based on the Fed’s rhetoric, they intend to hike rates two more times to combat inflation – which would indicate a yield of 5%. However, the chart indicates the Fed will be reducing rates shortly. Is this a short-term disconnect or an indication the market thinks the Fed is much closer to cutting rates than industry pundits are forecasting? We’ll know in a few days.

Source: Helios Quantitative Research, Bloomberg

Team Helios

Team Helios

Helios partners with Financial Advisors to help them grow their business, save time, and add scale to their services through enhanced asset management capabilities. Helios was founded in 2016 in Granite Bay, California.