Market Commentary 10/27/17

Interest rates continue to move higher in the face of strong corporate earnings (rates rallied surprisingly today), a rip-roaring stock market, and indications out of Washington that the pro-business tax reform is moving along positively.

On the economic front, the Bureau of Economic Analysis reported Gross Domestic Product (GDP) grew by a solid 3%, an overall good reading, and yet another reason for bond yields to move higher.

Across the pond, the European Central Bank Chairman Mario Draghi clarified how the ECB will move forward with its own slow and steady reduction in Quantitative Easing. The ECB chairman’s tone remains dovish (bond friendly) and he has committed to keep monetary stimulus going at least through September of 2018. These bond-friendly comments did help to steady bonds late in the week.

With the 10-year Treasury breaking through 2.400%, we remain biased toward locking in interest rates. There are simply too many positive economic and corporate reports coming out of Wall Street to gamble on interest rates going lower. We are also carefully watching the 10-year to see if it breaks through the all important 2.62% level.