Rates have moved steadily lower over the last week.
And, as per usual, nobody saw it coming.
The unexpected news that pushed rates down included the following:
- Nancy Pelosi’s Impeachment Inquiry. Major uncertainty in both political and economic arenas tends to push rates down.
- Waning Consumer Confidence. Traders watch these surveys closely and react sharply to declining numbers b/c they often portend a recession.
- “Tough” Trade Talk. Mr. Trump made more bellicose comments about trade and China in a U.N. Speech. Threats to world trade always spook the markets.
- Flat/Inverted Yield Curve. Short term yields are almost the same as long term yields, which is normally not the case. This too tends to spook the markets into thinking a recession is on the way.
Any one of the above events would not typically move the market that much, but the combination of all four pushed rates down again to levels nobody expected (a recurring theme) this soon.
Negative news and uncertainty tend to push rates down for a few reasons including: (1) if the economy is weakening, it is more likely that the Fed will attempt to either keep rates low or to lower rates in an effort to fend off a recession; and (2) if the economy is weakening, traders tend to move funds out of stocks and into bonds and the resulting increased demand for bonds tends to push rates down.
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