US Treasury interest rates falling

By Jeffrey Cohen

Short note. We continue to be surprised by the strength of real estate stocks, but then we see that interest rates continue to fall.

• The UST 10-year yield is trading at 3.83%, when about a month ago it was 4.25%.
• The UST 13-week yield is trading at 5.04%, and has declined from 5.2% about a month ago.
• These are significant declines and will impact U.S. Mortgage Rates, driving them lower, making housing more affordable. It also reduces the cost of servicing the ~$35T U.S. Federal Debt.

We understand why the 13-week yield is lower. People are expecting a Fed FOMC policy rate cut of 0.25% to 0.50%, and this 13-week bill would be renewed after that rate cut...so people are willing to take less knowing rates will be lower.

What we don't really understand is why the 10-year note is trading so much higher (rates lower). This is the market talking, and not a simple measure of arbitrage. It implies a much more inverted yield curve, which is typically an advance warning signal for recession.

This is weakening the U.S. Dollar, which is now trading at $1.110 This has been below $1.10 since late December 2023. This means it costs more Dollars to buy a Euro, and the Euro is considered 'stronger' or a better place to park assets. It also could mean that financial assets are flowing back to Europe from the USA.

The U.S. equities markets have been on a steady and steep upward climb since August 7, 2024. The rally has lasted for eight straight days, and today it looks like we could see a ninth day of increases. There seems to be a rotation, but we cannot pinpoint it.

Gold is higher, as well as residential mortgage-backed securities. This is because interest rates are lower, sure, but what about credit quality?

At the end of the day, what is an investor to do?

​Give us a call and let's discuss it.