To the Point!

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

 Treasury 10 Year to 3 Month T Bill

Inverted curves (when the gold line goes below the red line meaning that short maturity yields are higher compared to longer maturity yields) have preceded recessions. The longest period of inversion led to the longest recession. 10-year Treasury rates were inverted to 3-month T-Bills for 388 days prior to the Great Recession. The current inversion is now 328 days long.

 US Personal Consumption Expenditure

The shaded blue area represents the Fed’s favored measure of inflation – Core Personal Consumption Expenditure (PCE). Inflation began its sharp rise in 2021 and peaked in early 2022. The Fed began to raise Fed Fund rates in March 2022 (depicted by the gold line). They have raised an extraordinary 525 basis points in just 18 months. Although inflation has trickled slightly lower from the highs, the dramatic Fed policy seems to have had minimal effect on it.

The national average 30-year fixed-rate mortgage* since 2020 has been 4.55%. It is now 7.59%. The average new car finance rate** has been 5.25% since 2020. It is now 6.6%. Credit card delinquencies** are ticking up when outstanding balances held by consumers are 26% greater than 10-year averages or nearly 35% greater than 20-year averages.