Monthly Market Update

Time Value Investment’s Monthly Market Update is designed specifically to meet the needs of public entities. You will find each page in this concise report to be relevant to the public funds investor.

This update is generated on the first Friday of the month, to correlate with the U.S. Department of Labor “Employment Situation” news release. Experience has demonstrated that this release tends to impact those securities, Treasury, Agency, Municipal, and Corporate bonds, most commonly utilized by public funds investors.


PUBLIC FUNDS INVESTMENT MARKET UPDATE

Good morning,

Today the "Change in Nonfarm Payrolls" and "Unemployment Rate" statistics were released for the month of October. This data is important to monitor as it tends to influence interest rates. Below please find an economic update for the last month, including current market information reflecting the most current data.

EMPLOYMENT FIGURES

Two of the popular measures of US employment status are "Change in Nonfarm Payrolls" and "Unemployment Rate."

  • The "Current Month" column shows Nonfarm Payrolls increased by 128,000 new jobs in October. This jobs number came in below the 12 month average but was well above market projections.
  • The "Last Month Revised" column shows that the prior month’s 136,000 job increase was revised up to 180,000 new jobs.
  • The Unemployment Rate increased slightly from 3.50% to 3.60%.

Sources: www.bls.gov/web/empsit/cesnaicsrev.htm
data.bls.gov/timeseries/LNS14000000

US TREASURY YIELD CURVE

This graph shows the United States Treasury interest rates for maturities ranging from 1 month to 30 years.

  • The orange line represents the US Treasury Curve as of last month and the blue line represents today's US Treasury Curve. The yields for the various maturities of the two US Treasury Curves are listed below the graph.
  • You will notice that interest rates 1 year and under decreased over the last month while interest rates of 2 years and longer increased over the last month. The Treasury Curve essentially became quite a bit flatter than it was as of 10/4/19.
  • The unusual condition of short-term rates being level with or exceeding long-term rates first occurred on December 5th, 2018 and has persisted throughout the last 11 months.

Source: www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

3-YEAR TREASURY GRAPH

Many public funds investment portfolios have a 2-3 year weighted average maturity.

  • The 3-year Treasury rate increased sharply in the second week of the month and then remained relatively steady before dipping slightly at the end of the month.

Source: www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

UNITED STATES EQUITY MARKETS

Stocks are not typically permitted for public funds investing. However, they do play a role in the broader economic picture and consequently can influence interest rates.

  • The far right column shows the Dow is up roughly 14.53% year-to-date, the S&P 500 is up roughly 18.10%, and the NASDAQ is up roughly 20.65%.

*As of ~8:00 am 11/1/2019

FEDERAL FUNDS RATE

The Federal Funds Rate is the overnight rate on overnight loans set by the Federal Open Market Committee (FOMC) at the Federal Reserve. Rates offered by local government investment pools and money market funds tend to correlate with the Federal Funds Rate. The Federal Funds Rate is therefore a baseline for short term investments and cash accounts. The graph below shows the upper bound of the Federal Funds Rate over the past 5 years.

  • At the most recent meeting on October 30th, the FOMC chose to cut the Federal Funds Rate target range from the 1.75%-2.00% range to a new range of 1.50%-1.75%. This was the third consecutive cut of the Federal Funds Rate following a similar .25% cut at the July 31st and September 18th meetings.

Source: Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; fred.stlouisfed.org/series/FEDFUNDS, June 6, 2019.

FEDERAL OPEN MARKET COMMITTEE MEETING CALENDAR

The Federal Open Market Committee (FOMC) meets approximately every six weeks and determines the level of the Federal Funds Rate.

  • The last meeting was October 30th, when the FOMC elected to cut the Federal Funds Rate target range 25 basis points (.25%) from 1.75%-2.00% down to 1.50%-75%. Eight of the voting members voted to cut the Federal Funds Rate by 25 basis points, while two members voted to leave the rate unchanged.
  • The next meeting is December 11th, and the current market expectation is that the FOMC will likely not cut the Federal Funds Rate at that meeting.

Source: www.federalreserve.gov/monetarypolicy/fomccalendars.htm

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