US Treasury Interest Rates Continue To Fall

10-year UST note futures trading at 3.792% this morning. The 13-week UST bill at 5.03%. The 2-year UST note is trading at 3.943%. The spread between the 2&10 years notes is -0.151%, which shows a pretty flat yield curve.

This is good news for stocks, as lower interest rates lessen the 'pull' of risk free income away from equities.

There is an issue. This may not be sustainable.

What would happen if the economy weakens AND the US Federal Government has to borrow more to finance deficit spending. Typically, the government pays down its debt during positive economic growth (like the last few years) and has 'dry powder' for when things turn lower.

The bad case for us is that politicians feel the need to grow spending (as opposed to shrinking it) and cannot raise enough tax revenue to pay for that, plus the increase in interest expense (which is something like an extra trillion dollars per year as the debt rolls over). This re-creates the inflation boogey-man, which requires higher policy interest rates, which creates a debt crisis.

That being said, it is unlikely that our technocratic leadership at the US Federal Reserve will let that happen, and everything should be fine.

We are not pouring our clients, nor our own assets, into long-term debt at sub-4% rates until US Fiscal Policy is resolved and starts taking action to resolve our unstable spending and borrowing situation.

Here is the funny part. I am not sure that this is about elections...it is about a collective, bipartisan focus on our economic health and prioritizing our spending.