DAX
FTSE (UK)
Nikkei
S&P 500
NASDAQ
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World Stock Market Indices
Recent economic data suggests positive but slower growth this year fueled by consumer spending. While the consumer has been resilient, declining savings rates, growing credit card debt, higher delinquencies, and a moderating labor market pose potential headwinds to future economic growth. Inflationary trends are subsiding, but core levels remain above the Fed’s target. The labor market is showing signs of cooling, reflecting an improved balance between supply and demand for workers. Given the cumulative effects of restrictive monetary policy and tighter financial conditions, we believe the economy will gradually soften and the Fed will begin lowering interest rates at upcoming meetings with pace and magnitude determined by the incoming data.
At the July meeting, the Federal Open Market Committee (FOMC) voted unanimously to leave the federal funds rate unchanged at a target range of 5.25-5.50%. Although this was the eighth straight meeting the committee left the overnight rate unchanged, they noted that risks to achieving their employment and inflation goals are moving “into better balance”. In addition, the FOMC adjusted their evaluation of the labor market pointing out that job gains have moderated.
The market is now pricing in more aggressive easing in the coming months.
The US Treasury yield curve shifted significantly lower in August as economic data continued to moderate. The 2-year Treasury yield fell 34 basis points to 3.92%, the 5-year Treasury dropped 21 basis points to 3.70%, and the 10-year Treasury yield declined 13 basis points to 3.90%. The inversion between the 2-year Treasury yield and 10-year Treasury yield narrowed to -2 basis points at August month-end versus -23 basis points at July month-end. The spread between the 2-year Treasury and 10-year Treasury yield one year ago was -75 basis points. The inversion between 3-month and 10-year Treasuries ended the month of August at -121 basis points.
In August, the downward trend in yields observed in the bond market over the past three months continued. Treasury yields declined across the yield curve as the first interest rate cut in the federal funds rate by the Federal Reserve in 2024 is widely anticipated to be announced at the September FOMC meeting. Chair Jerome Powell’s remarks following the 2024 Economic Policy Symposium in Jackson Hole, Wyoming were perceived as particularly dovish as he chose not to counter market expectations for near-term rate cuts. This sentiment is supported by continued cooling of inflation and normalization of the labor market, which has brought inflationary pressures and labor market risks into closer alignment. Investors are now factoring in a 0.25-0.50% rate cut at the September FOMC meeting, with further reductions expected through early 2025. Despite the prevailing dovishness in the market, Chair Powell reiterated that rate cuts will depend on incoming economic data, stating, “the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Market Summary
BOND MARKET REVIEW
A Monthly Review of Fixed Income Markets
September 2024
(Japan)
(Germany)
(Hong Kong)
TREASURY YIELDS Trend 8/30/24 7/31/24 Change
Chandler Asset Management | 800.317.4747 | chandlerasset.com | Page 1 5,648.40
8,376.63
17,713.62
41,563.08
18,906.92
17,989.07
126.10
8.65 644.47
114.22
398.27
720.29
data as of 08/30/2024
Change
(7/31/2024)
2.28%
0.10%
2.15%
Source: Bloomberg. Please see
descriptions of indices on Page 2.
1.76%
0.65%
%CHG
3.72%
3-Month
2-Year
3-Year
5-Year
7-Year
10-Year
30-Year
5.12 3.92
3.78 3.70
3.80 3.90
4.20 -0.17
-0.34
-0.28
-0.21
-0.15
-0.13
-0.11
Source: Bloomberg
Market Data
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chandlerasset.com
Source: Bloomberg
(▲/▼)
▼
TREASURY YIELDS FELL IN AUGUST
38,647.75 (454.07) -1.16%
5.29 4.26
4.06 3.91
3.95 4.03
4.30 ▼
▼
▼
▼
▼
▼
Economic Roundup
Retail Sales
Labor Market
Housing Starts
Consumer Prices
Crude Oil prices Fell in August
Credit spreads where unchanged in August
ECONOMIC INDICATOR
Trade Balance
Gross Domestic Product
Unemployment Rate
Prime Rate
Refinitiv/CoreCommodity CRB Index
Oil (West Texas Int.)
Consumer Price Index (y/o/y)
Producer Price Index (y/o/y)
Euro/Dollar
CREDIT SPREADS
3-month top rated commercial paper
2-year A corporate note
5-year A corporate note
5-year Agency note
Spread to Treasuries
(%) 5.24
0.48 0.65
0.11 One Month Ago
(%) 5.34
0.46 0.66
0.09 Change
(0.10)
0.02 (0.01)
0.02 Chandler Asset Management | 800.317.4747 | chandlerasset.com | Page 2 Housing starts were down 6.8% month-over-month in July to 1.238 million units, with the decline attributable to weak single-family homestarts. Total starts were down 16.0% year-over-year. The Freddie Mac average rate for a 30-year fixed mortgage edged down to 6.35% inAugust from 6.85% in July. According to the Case-Shiller 20-City Home Price Index, housing prices rose 6.5% year-over-year in June,decelerating from 6.9% reported in the previous month. Tight inventories and higher mortgage rates continue to impact affordability.
The U.S. economy added 142,000 jobs in August, below expectations of 165,000. The three-month moving average and six-month movingaverage payrolls continued to trend weaker to 116,000 and 163,000 respectively. The unemployment rate increased to 4.2% in August, andthe labor participation rate remained at 62.7%, remaining below the pre-pandemic level of 63.3%. The U-6 underemployment rate, whichincludes those who are marginally attached to the labor force and employed part time for economic reasons, rose to 7.9% from 7.8%. Averagehourly earnings rose 3.8% year-over-year in August. The labor markets continue to show signs of cooling, in line with the Federal Reserve’sview that there has been “substantial” progress toward better balance in the labor market between demand and supply for workers.
Retail Sales grew more than expected month-over-month in July at 1.0% after a downwardly revised -0.2% in June. On a year-over-yearbasis, Retail Sales growth increased to 2.7% in July from 2.0% in June. Auto sales bounced back sharply after a cyberattack on dealershipscaused a sizable decline in June. Control-group sales, which are used to calculate gross domestic product, rose 0.3% in July, down fromJune’s 0.9% increase. The Conference Board’s Consumer Confidence Index rose to 103.3 in August, up from July’s upwardly revised 101.9reading. Both the present situation index and expectations index improved. While the consumer has been resilient, consumption has begun tomoderate in the face of declining savings rates, growing credit card debt, higher delinquencies, and a moderating labor market.
In August, the Consumer Price Index (CPI) rose 0.2% month-over-month and 2.5% year-over-year, down from 2.9% in July, largely due to adrop in gasoline prices. The Core CPI, which excludes volatile food and energy components, rose more than expected in August by 0.3%month-over-month and 3.2% year-over-year. The Personal Consumption Expenditures (PCE) Index rose 0.2% from the previous month and2.5% year-over-year in July. The Core PCE deflator (the Fed’s preferred gauge) increased 0.2% month-over-month and 2.6% over the pastyear, still above the Fed’s 2% inflation target. Much of the lingering inflation has been driven by shelter costs and demand for services, butrecent data provide confirmation that inflation is moderating.
BOND MARKET REVIEW
World Stock Market Index DescriptionsS&P 500–The S&P 500 is a market value-weighted index of 500 large-capitalization stocks. The 500 companies included in the index capture approximately 80% of available US market capitalization.NASDAQ–The NASDAQ Composite Index is the market capitalization-weighted index of over 3.300 common stocks listed on the NASDAQ stock exchange. Dow Jones–The Dow Jones IndustrialAverage is an index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange and the NASDAQ. The Financial Times Stock Exchange Group (FTSE)–The FTSE is ashare index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. DAX–The Deutscher Aktienindex (DAX) is a blue chip stock market index consisting ofthe 30 major German companies trading on the Frankfurt Stock Exchange. Hang Seng–The Hang Seng Index is a freefloat-adjusted market-capitalization- weighted stock market index in Hong Kong.It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of overall market performance in Hong Kong. Nikkei–Japan's Nikkei225 Stock Average is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. © 2024 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided forinformational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date ofpublication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report maycontain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. Thisreport is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for theexercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise.Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The S&P Corelogic Case-Shiller home price index tracks monthlychanges in the value of residential real estate in 20 metropolitan regions across the nation.
Source: Bloomberg
Source: Bloomberg.
Data as of 08/30/2024
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