- The 10-year U.S. Treasury yield drew particular interest in mid-May when it reached a four-year high of approximately 3.11%.1 The move seemed to confirm some investors’ fears that interest rates could continue their march higher and run the risk of slowing down economic growth in the United States.
- Since its recent peak, however, the 10-year yield fell sharply, approximately 27 bps in just 10 trading days, as investors absorbed a new round of political strife in Italy and Spain.1 At approximately 2.88% on June 1, the 10-year Treasury note is now squarely back into the range in which it has traded through most of 2018.1
- As the chart shows, yields across the curve moved lower since reaching their mid-May highs. In the same time frame, market expectations for the target federal funds rate declined approximately 13 bps, or approximately half of one rate hike in 2018, and by a full rate hike (approximately 25 bps) for 2019.2
- Investors should not overemphasize the importance of any two-week period. Yet recent declines across the yield curve and Fed funds rate expectations underscore the potential challenges that income-seeking investors could continue to face in 2018 and beyond.
1 Federal Reserve Bank of St. Louis, https://bit.ly/29ecBfp.
2 Target federal funds rate expectations based on Bloomberg as of May 31, 2018.
The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.