Today only you can get 5% tax exempt yields – and a happy April fool’s day. Actually the opposite is true, the 10-year treasury has dropped this morning to 1.78%, the lowest it has been in the past month. Helping to keep rates from coming back up too far is the fact that the Fed as lowered their guidance regarding the pace of potential rate increases. In their last meeting minutes, and based on the dot plot of the Fed’s expectations, it was revealed that instead of expecting to increase rates 4 times in 2016, now only twice seems to be the implied number. If that is to be the case, then June and December would be the most likely time frames for the rate increases to take place.
Yellen’s comments following the meeting also hinted that April was an unlikely time frame for another rate increase, furthering the idea that June would be the target. Since the release of this news, the 10-year treasury has dropped from 1.96% back down to its low today of 1.78%, all in about a two week time period. Stocks have also taken well to the news, with the S&P 500 continuing its recent, rapid increase and rising an additional 1.6% in the last two weeks.
This morning we also received the employment report for the month of March, with non-farm jobs growing by 215,000 in March, and beating expectations by 10,000. The unemployment rate ticked up from 4.9% to 5.0%, the first increase in nearly a year. Upcoming economic data to keep an eye on in April will be the CPI inflation rate on 4/14, the Fed’s April rate decision on 4/27, and the first quarter GDP number on 4/28.
In my last commentary I mentioned that our short term range for the 10 year was from 1.78% to 2.00%. We are currently right up against the bottom of that range. If we go through the 1.78% resistance level, then the next important levels would be 1.65% and 1.57%. On the upside, 2.00% remains a pivotal level that we have not been able to get above since the beginning of January, and remains the top of the range for now.
Eric Swanson, CFA