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Treasuries at Multi-Month Lows After Fed Statement

Today’s Fed statement indicated “cautious optimism” on the economy. On one hand, confidence: the September rate hike is on track. On the other hand, caution: the December rate hike that was “on” is now “maybe” with minutes indicating a divided Fed. The statement cited trade disputes and tariffs as a potential hindrance to economic growth. Trade talks between the US and China begin this week with a possible summit meeting and agreement in November. If there is no deal, there may be no rate increase in December. The Fed also looked hard at slowdowns in residential construction and home-buying (mortgage data). This market is extremely sensitive to interest rates and this slowdown may be partially the result of recent Fed rate increases. This “unsureness” combined with trade tensions, emerging markets contagion (Venezuela, Turkey) and this week’s court proceedings involving administration officials all have combined to create a flight to quality trade. The 10 year yield is down to 2.81%. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners