2-3 Year Treasuries May Be Signaling a Pause In Rate Hikes after December

The 2 charts below show important developments in 2 & 3 year Treasury yields (See charts 1 & 2 below):

• While longer-term uptrends in yield remain in place…
• Shorter-term uptrends in yields are breaking
• Based on market technicals (trend analysis and Fibonacci) it would not be unreasonable to see rates falling at the front end of the curve meaningfully before resuming their uptrend.

This would be consistent with:

• A Fed pause during the tightening cycle…
• Decelerating US growth (housing blinking yellow lights)
• Decelerating growth overseas

We believe this is a signal for investors who have been sitting on cash to put it to work in short and intermediate term fixed income. We may have seen a short-term peak in short term rates.

This is being confirmed by:

• Equity market weakness
• Dollar weakness (if FX investors thought the Fed was still hiking rates the dollar would get stronger)
• Commodity market weakness

2 YEAR TREASURY

3 YEAR TREASURY

Source: Bloomberg, accessed on November 19, 2018

– Jonathan E. Lewis, Chief Investment Officer

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