In late February, I published and commented on a chart depicting the path of US and Canadian government bond yields since the 2016 US Presidential election. An updated chart, showing yields up to and including April 25th, is shown below.
As you will note, government bond yields crept up to their post-election highs in the days leading up to the March 14th-15th Federal Open Market Committee (FOMC) meeting in the US. During the lead-up to this meeting, Federal Reserve officials sent strong and rather clear signals that, given the Fed’s economic assessment, an increase in the Fed Funds rate target on March 15th was a near-certainty (and additional increases in the near future were to be expected). Bond markets responded to these signals. (And indeed, at its meeting, the FOMC ultimately hiked the Fed Funds target by 25 basis points (0.25%)).
Since then, government bond yields have generally been declining, due to mixed US economic data (e.g., slowing pace of job growth) and likely due to perceived political uncertainty and the impact on the economy. For example, the failure to repeal and replace ObamaCare in a Republican-dominated Congress may suggest that the implementation of the US President’s agenda may not be a slam dunk (see my first post/blog on interest rates). And, while tax cuts may be less contentious than health care, the timing and extent of tax relief that the President and Congress can agree to remain to be seen.
Neil Lindsay, BBA, MBA is a finance lecturer, tutor, and consultant, who has been teaching finance to MBA, Executive MBA, and professional students for fifteen years. He is also an award-winning finance and public policy professional, with private sector and pubic sector experience in corporate finance, capital markets, and risk management. Neil may be reached at firstname.lastname@example.org.