U.S. government bond yields dipped and traded favorably this week in response to mounting concerns about emerging market economies, increased tensions over global tariffs between the US and our major trading partners, and the likely prospect of a Fed Rate hike next week. However, the aforementioned events must be weighed against positive factors including the U.S.’s strong economic growth, the low rate of unemployment, and the corporate and personal tax cuts, all of which have increased business and consumer confidence and which continue to support the argument of higher interest rates.
We remain watchful of the 10-year Treasury trading pattern to see if the all-important 3% yield level is breached. We believe rates above 3% is what may make a dent in the value of stocks, bonds, and other hard-asset valuations. We also fear that if the yield pushes above 3%, rates may move higher quickly and volatility will surely follow as well.
With several important meetings next week including the U.S. and North Korea Summit, the Federal Reserve Meeting, and the European Central Bank meeting, we are heavily biased toward locking-in interest rates to protect still historically attractive rates and terms.