In addition to monetary policy decisions from the Federal Reserve, interest rates on intermediate- and longer-dated U.S. Treasury securities are also affected by the supply coming to the market as well as the demand for existing issuances. As you can see from the chart below, even though the Fed lowered its target range for the federal funds rate by ½% to between 4¾% to 5% on September 18, the yield on the 10-Year U.S. Treasury Note has risen from 3.70% to 4.20%.
Why and what does this mean to investors?
If investors believe that the Fed was too aggressive in respect to cutting rates, fearing a rekindling inflation, they will demand a higher yield to compensate for the decrease in inflation-adjusted returns.
Since the Fed’s recent rate cut, the economic data that has been released, including the October Payroll Report, has come in stronger than expected, leading many to believe that perhaps the U.S. Economy, may not be slowing to the extent that would warrant as many cuts as previously anticipated. Investors would respond to this change in data by pushing rates higher.
Statements made by both Presidential Candidates have heightened concern over the Federal Debt. Should that concern materialize, it would lead to an additional supply of bonds coming to the market to pay for the debt incurred. Should demand remain constant, the result would be higher interest rates. Furthermore, investors may wish to be compensated for the increased risk of investing in a country with an abnormal debt to GDP ratio.
The bottom line – should interest rates continue to trend higher; they will provide a headwind to equity prices. Regarding fixed income, we will continue to ladder maturities to protect our clients from rates regardless of their direction.
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
Doug is a lifelong resident of the Capital Region and graduated from Rensselaer Polytechnic Institute in 1999. Prior to joining Fagan Associates in 2024 as a Financial Advisor, Doug spent time at Wealth Advisory Group and Purshe Kaplan Sterling, Inc. Doug resides in East Greenbush with his wife Meghan and three children, Ellie, Saige, and Connor.
I’ve been working in financial services for the past 11 years, both in an advisory capacity and also working with other advisors to help them with their practices. Prior to that I spent 14 years in the security alarm industry, primarily in mergers and acquisitions.
I would say my family and sports are my two main passions outside of work (my family will debate the order 😉). Many times, those passions overlap as I’ve been a youth sports coach for all our kids, both at the recreational and travel level. I love to play golf and watch the Giants, Yankees, and Knicks depending on the season.
A perfect weekend for me would involve a great dinner out with my wife and our friends, some time spent watching and coaching our kids play sports, and hopefully a round of golf.
We’ve been blessed to take some amazing trips, but my favorite spot is Harwich Port in Cape Cod. Our family and extended family has spent a week every July there for the past 20+ years, and it is always one of the best weeks of the year for our family.
That you have to get outside your comfort zone, that is where the magic happens! Try something new, say yes more, make yourself uncomfortable from time to time and see what happens. Most of the time you won’t regret it. We usually look back on life and regret the things we didn’t do, not the things we do.
After a six-month downward trend in the yield of the ten-year U.S. Treasury Note, that tide has stalled, if not turned a bit after Jerome Powell and the Fed cut the Fed Funds Rate by 0.50%. As you can see from the far-right portion on the chart below, the interest rate on the 10-Year spiked from 3.63% last week to 3.75% as of September 25th.
Interest rates can rise for many reasons, and in this instance, we believe it is a culmination of many factors. Jamie Dimon, CEO of JP Morgan, was recently interviewed during The Atlantic Festival and voiced his concern over persistent inflation amidst the “remilitarization of the world,” along with the impact of deglobalization, among other things. We believe that although Fed Chairman Jerome Powell stated, “the upside risks to inflation have diminished,” bond investors are still a little cautious that inflation may be a sticking around a bit, pushing inflation expectations and therefore long-duration interest rates up a bit. At this time, we are a bit more optimistic regarding the ability of the Fed to keep inflation at or near this level. However, we do think they will find it difficult to get them down to two percent, one half of their dual mandate. In our opinion, don’t expect rates on the long end to fall much further. That will be done on the short end.
Sources, Federal Reserve; JP Morgan
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.