Hi, I'm R.J. Gallo, Senior Portfolio Manager at Federated Investors.
What has caused treasury yields to fall?
The China/US trade pact had been expected to stimulate an otherwise slowing global economy. If that pact isn't going to happen or people doubt that it will happen, the prices had to adjust. So treasury yields plummeted during much of May. Risk assets like stocks struggled in May. Secondarily, President Trump also started wielding tariff threats against Mexico, urging Mexico to do more on immigration. This was a very novel use of tariffs, very unusual. But I think has been perceived by the markets as bringing more disorder and concern, that also helped to support bond yields falling as well.
Do you expect continued volatility in the interest rate markets?
So we're sort of at a binary moment in a lot of key policy areas on trade. If they break a certain way yields might retrace somewhat higher. If they don't, yields will go lower and the fear is that global growth which is already flagging will become even more challenged and the idea that the Federal Reserve will have to ease monetary policy will get even more credence in the market.
Disclosure Views are as on June 5, 2019 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Federated Investment Management Company 19-10088 (6/19)