The Daily Update - FOMC, US Treasury

The FOMC last night, as widely expected kept the Fed funds rate at a 1.0%-1.25% range. The statement following the conclusion of the meeting was little changed, and markets were relatively quiet through the release. On current growth, the committee noted that the labour market has been rising at a solid pace despite hurricane related disruptions, and added language underlying that inflation remained soft; they separated out gasoline prices which had boosted overall inflationary levels. As for the outlook, it was said to be roughly balanced and unchanged from September. New Fed Governor Quarles joined the unanimous 9-0 decision to stay put. Expectations remain that a December hike is on the way with the futures market 80% in favour of a 25bp move.

However, the longer dated US Treasury market continued its recent drop in yield which started just before October month-end. This was mainly to do with the US Treasury refunding announcement and comments from the Treasury Borrowing Advisory Committee (TBAC). Given the flattening of the yield curve there has been speculation in the market that the Treasury would consider an increased level of debt issuance at the longer-end of the curve. Treasury Secretary Mnuchin had said no such plan existed, but the market did seem to think there was some possibility it would be reconsidered.

However, last night’s Treasury comments alleviated the longer dated supply fears especially as the Federal Reserve begins tapering its balance sheet. Broadly, without pasting in the various paragraphs of their statement, while issuance will be higher next year as we all expect, the mix of maturities seems to focus on the shorter-end of the curve.

TBAC comments are just recommendations, but they appear to be in line with current Treasury thinking regarding longer dated debt being issued they said ‘Given the current fiscal outlook, the committee agreed that the Treasury should focus on increasing issuance in bills and the 2, 3, and 5 year sectors, while maintaining issuance at the longer end such that the WAM (Weighted Average Maturity) does not materially change from current levels’.

We expect a continued move lower in longer-dated yields over the coming months as the Treasury appears to have removed another obstacle to further curve flattening. Of course, inflation is the key in this outlook and remains the dominant determinant. With the Fed expected to move again in December, be it Yellen, or new front runner Powell at the helm, the US inflation environment has everyone’s close attention.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.