Fixed Income Market Update

Jun 2, 2023

After all the rhetoric, all the hand wringing and all the sound bites, the House and the Senate passed the debt ceiling suspension. Just a commentary on the voting: The final tally for the House vote was 314 to 117. The tally for the Senate vote was 63 to 36. This is how a democracy works, a compromise that the extremes of each party didn’t like, but the middle could vote for. Perhaps the media cover more of the middle rather than the extremes? It might make the government work a little better.

One last thought beware temporary suspensions. They are like temporary taxes. They have been known to evolve into permanence.  

Now that the debt ceiling is behind us we have the Great Fundraising! The US Treasury bank account is empty, and they need to get it refilled. Some estimates are for $1 trillion over the next year, along with regular funding needs. While there are a lot of moving pieces to money markets, this level of capital raise might well put added stress on a market that is already challenging banks and other companies trying to raise capital.

While we were all distracted, the job market got stronger. A whole lot stronger. On Friday, the Bureau of Labor Statistics released Non-Farm Payrolls up 339k jobs versus a Bloomberg consensus estimate of 195k jobs and April’s 294k jobs (revised up by 41k jobs). A stellar showing, but very concerning for inflation. This release continues a run of concerning inflation developments, leaving the Fed with a tough decision to make Jun 14th. If they pause, the futures market expects them to increase the Overnight Fed Funds Rate again in July. This would be the first pause and increase in the post-Volker Fed Era.

What to do? Building portfolios is all about balancing risk and reward. It’s tempting to favor the yield of a 3-Month US Treasury bill at a 5.32% or a 6-Month Bill at 5.40% or even a 12-Month Bill at 5.18%. But what if rates are much lower when that bill expires? We like to balance the Bills by adding duration to our portfolios with the 10-Year Note at 3.66%. That locks in today’s rate and, With an active Fed aiming to lower inflation, potentially profit from lower long-term rates.

-Peter Baden, CFA
Chief Investment Officer

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Next FOMC Decision
June 14, 2023

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Fixed Income Rates

Source of Interest Rates: US Treasury Yields via Bloomberg LP see footnote at the bottom of this e-mail for which indexes are used.
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Contact Genoa Asset Management

William (Kip) Weese
SVP, Intermediary Sales
Northeast & South West
(508) 423-2269
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Rick Bell
VP, Intermediary Sales
North Central & North West
(513) 762-3694
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