Political Events Driving Market Moves, Flight to Quality

Recent turmoil in Washington has dramatically lowered investor confidence that any major economic legislation is forthcoming in this year’s “window” (next year’s mid-term elections make major legislation less likely).    The stock market sold off and the 10 year treasury yield dropped about 10 bps and is now down to 2.22%.    Combined with recent reports dampening inflation expectations, long bonds may be headed back to pre-election levels.   Expectations of upcoming Fed increases are raising yields on the short end which is flattening the yield curve into a “slow growth” predictor. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.