Market Commentary 6/9/17

Bond yields ended the week a touch higher after a wild week of political uncertainty culminating with the testimony of former FBI Director James Comey. The equity markets responded favorably as the testimony revealed a potentially inappropriate private conversation between President Trump and the former director, confirmed that the President was not under investigation, and revealed that many news outlets had been misinforming the public on the Trump-Russia connection.

Across the pond in Europe, the UK votes delivered a stunning blow to Prime Minister May and her conservative party. The vote raises the possibility of whether the Brexit negotiation should be put on hold while the British sort out their political crisis. The UK pound plummeted in response to this vote. Uncertainty typically benefits bonds and the low European rates have helped keep our rates in the U.S. low.

The idea of “buy the rumor and sell the news” held true for U.S. bonds as rates rose as fear eased this week. The next big economic event is the Federal Open Market Committee’s meeting next week. All eyes will be on what the Fed has to say about the state of the economy and on short-term interest rates.

With mortgage and treasury bonds trading close to their 200-day moving average, we remain biased toward locking in interest rates. We envision too many scenarios that could push rates higher and not enough catalysts to lower interest rates.