The Daily Update - Term Spread at Record Lows

US Treasury 10-year yields have fallen below 2.24% and are at their lowest in 20 months; 30-year yields at below 2.68% are just a couple of basis points from surpassing lows of 2017 to mark 30-month lows. More notably, the Fed term premium (vs 10-year) at -0.79 is now at the lowest since data started in 1961, and in the US dollar swaps curve the 50-year yields are around 19 basis points lower than the 3-month yields (2.34% vs 2.53%).

Of course, Treasury yields are still nowhere as low as mid-2016 levels when the 10-year hit 1.35% and the 30-year at 2.09%. For now it seems concerns over global growth, undershooting inflation and protracted trade concerns are putting 2% and 2.5% respectively in the sights of many market commentators in the near-term. US equities have been down five of the last seven trading days and look set for another fall later today following the red across Asian and European markets this morning.

At least the US held back in labelling China a currency manipulator yesterday, in their semi-annual report on trading partners’ macro and FX policies. But the details speak another story. The report as a whole demonstrates a furthering of a protectionist stance from the US as they increase the number of countries they evaluate, from 12 previously, to the 20 countries where bilateral trade surpasses $40bn per annum, whilst tightening the definition of a “material current account surplus” from 3% to just 2%. Any of the countries that breach this or the other thresholds (including “persistent” and “one-sided” currency manipulation that extend beyond 6-months or 2% of GDP) now face the threat of new tariffs from the US Department of Commerce.

Although our base case does not expect safe asset yields to fall to mid-2016 levels, the current environment reflects many of the same global growth and trade concerns with the addition that we are 30 months further ahead in the business cycle. Neither do we anticipate longer-dated Treasury yields to bounce back significantly from present levels any time soon given there are little to no signs of any of the three major economic headwinds relenting near-term.

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.