Interest Rate Volatility

October 16, 2019

At our recent Evening Event with the Cabot Team I discussed the volatility around interest rates and a few of the critical economic indicators that could be driving yields back down to the lowest levels seen earlier this cycle. Here is a summary of my presentation:

Chart showing steep and parallel rising yield curve back in Sept. of 2018. Source: Bloomberg

As the above chart shows, what had been a somewhat steep and parallel rising yield curve back in September of 2018 began to suddenly flatten out. As the yield curve flattens, investors become concerned the market is signally a slowdown in the strength of the economy.

Due to the current trade war between U.S. and China, global manufacturing and trade have slowed down in the past year. Whether or not the global slowdown will spread enough to slow down the U.S. jobs market and put a damper on U.S. consumer spending will be the big question on investors’ minds as we wrap up 2019 and head into a critical election year.

On the positive side, the U.S. jobs market seems to still be in good shape. The most recent data released by the Bureau of Labor Statistics showed 136,000 jobs were created in September, while at the same time revising the past two months up by 45,000 jobs, putting the current unemployment rate at just 3.5%. If the U.S. job market continues to stay strong, the U.S. consumer should feel good enough to keep spending, offsetting any weakness coming from the manufacturing sector and global trade.

Chart Source: Bloomberg