Fixed Income Market Update

June 17, 2022

Friday the Bureau of Labor Statistics reported the May inflation numbers and they didn’t show any improvement. We have been in this above 4% inflation environment for over a year, and this latest print of 8.6% is the highest since December 1981. So it’s a good question to ask: Will this hot inflation cool off?

Monday, we got an answer from The US Federal Reserve. That answer was: Yes if we have anything to say about it.

The inflation report showed broad based inflation, lead by energy up 34.6%, Used cars up 16.1% and food up 10.1%. More importantly shelter was up 5.5%, a big component of the core index.

Monday afternoon, the Wall Street Journal reported the Fed was considering a 75 basis point increase in the Overnight Fed Funds rate. This is an increase from their previous pace of 50 basis point increases, which was an increase from their traditional 25 basis point increases. On Wednesday, the Fed followed through and raised rates 75 basis points but stressed 75 basis point increases would not be “Common”.

But is this going to work? Looking at some statistics reported this week: Retail sales MoM down 0.3%, Housing starts MoM down 14.4%, Building permits MoM down 7.0%, we can see the impact of higher rates working through the economy. This is a battle of supply and demand. Given supply chain snarls, COVID lockdowns and the war in Ukraine, there is not much the Fed can do about supply. Demand on the other hand, can be affected by higher rates at the consumer, business, and government level. With this rate increase and these and other economic releases, the likelihood of recession has increased. However, as we mentioned last week, we don’t expect it to be deep, but we do expect it to cause a lot of volatility and spread widening. We continue to hold on to high quality investments, lighten our credit exposure and have a plan to buy when the time is right.

-Peter Baden, CFA
Chief Investment Officer

Click on the above links for more information on important investment and economic concepts.

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

Source of Interest Rates: US Treasury Yields via Bloomberg LP see footnote at the bottom of this e-mail for which indexes are used.
Click on the above links for more information on important investment and economic concepts.

Contact Genoa Asset Management

William (Kip) Weese
SVP, Intermediary Sales
Northeast & South West
(508) 423-2269
Email Kip

Art Blackman
VP, Intermediary Sales
(816) 688-8482
Email Art

Rick Bell
VP, Intermediary Sales
North Central & North West
(513) 762-3694
Email Rick


Indexes used for AAA Municipal Yields

2 Year: BVAL Municipal AAA Yield Curve (Callable) 2 Year (Symbol: CAAA02YR BVLI)

5 Year: BVAL Municipal AAA Yield Curve (Callable) 5 Year (Symbol: CAAA04YR BVLI)

10 Year: BVAL Municipal AAA Yield Curve (Callable) 10 Year (Symbol: CAAA10YR BVLI) 

30 Year: BVAL Municipal AAA Yield Curve (Callable) 30 Year (Symbol: CAAA30YR BVLI)

Indexes used for US Treasury Yields

2 Year: US Generic Govt 2 Year Yield (Symbol: USGG2YR)

5 Year: US Generic Govt 5 Year Yield (Symbol: USGG5YR)

10 Year: US Generic Govt 10 Year Yield (Symbol: USGG10YR)

30 Year: US Generic Govt 30 Year Yield (Symbol: USGG30YR)

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