Last week, our friends over at Charles Schwab put out this piece on market volatility, after the Italian president made some political (and financial) waves by vetoing a finance minister and sparked concern that the country could leave the E.U. and, therefore, the euro currency.
While there is some good commentary in here about stocks, the section of the article on the outlook for bonds is perhaps even more telling. Yields, both for money market (i.e, cash) instruments and other longer term securities such as municipal bonds, had been moving up in the U.S. since last year. The most known proxy for the “health” of the U.S. fixed income market, the 10-Year Treasury Yield, was over 3%.
However, the yield had fallen precipitously over the last month, over 30 points (or 0.30%) and that may affect the way the Federal Reserve (commonly known as “the Fed”) will think about rate hikes for the rest of 2018. Maybe they do one less rate hike than planned, at this point?
In any event, the article does a good job of outlining how, much like the equity markets, fixed income markets are interrelated as the Fed, the European Central Bank, Bank of Japan, and other banking regulators can all influence each other. Sometimes, in order to understand what is happening to our bonds and their yields, we have to look beyond our own borders!