10-year interest rates – from 1790 interest rates – …...1 fun with economics wgfoa spring...
TRANSCRIPT
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Fun with Economics
WGFOA Spring ConferenceB. Craig ElderDirectorSenior Fixed Income AnalystRobert W. Baird & Co., Inc.
Please Note: Information in this presentation is as of April 8, 2016 or prior.
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10-Year Interest Rates – from 1790
Source: Goldman Sachs10 year taxable 3
Interest Rates – from 1522
Source: Business Insider10 year taxable
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Interest Rates – from 3000 BC
Source: Business Insider 5
Treasury Yield CurveSource: Bloomberg
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10-Year Treasury Constant Maturity YieldSource: St. Louis Federal Reserve
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U.S. Treasury SupplySource: Bloomberg
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Budget as a Percentage of GDPSource: Bloomberg
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U.S. DeficitsSOURCE: St. Louis Federal Reserve
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U.S. Historical Deficits - % of GDPSOURCES: Data from the Office of Management and Budget, Budget of the United States Government: Fiscal Year 2013, Historical Tables, February 2012; Congressional Budget Office, Updated Budget Projections: Fiscal Years 2012 to 2022: March 2012; and the Historical Statistics of the United States, Millennial Edition Online, Cambridge 2006. Compiled by PGPF.
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Foreign Holders of U.S. Treasury IssuesSource: Bloomberg
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Municipal Bond Yield Levels – HistoricalSource: Bloomberg
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Municipal Bond Yield Levels – After TaxSource: Bloomberg
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Municipal Bond Yield Levels – AAA vs. ASource: Bloomberg
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Agency Yield CurveSource: Bloomberg
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IG Yield LevelsSource: Bank of America Merrill Lynch & St. Louis Federal Reserve
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HY Yield LevelsSource: Bank of America Merrill Lynch & St. Louis Federal Reserve
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HY Yield CCC or Below Effective YieldsSource: Bank of America Merrill Lynch & St. Louis Federal Reserve
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German BUNDS Yield CurveSource: Bloomberg
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Negative Interest RatesSource: JP Morgan & Bianco Research LLC
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Fixed Income Sector Statistics Source: Barclays
Sector Rating MaturityDurationMod Adj Convexity
AverageCoupon Yield Spread Price
YTD TR
Treasury Aaa/AA+ 7.61 6.26 0.88 2.08% 1.25% N/A $105.69 3.80%
Agency Aaa/AA+ 5.40 4.03 0.05 2.52% 1.67% 56 $103.60 2.60%
MBS Aaa/AAA 5.55 2.97 (2.31) 3.67% 2.30% 26 $106.07 2.08%
Municipal Aa3/A+ 13.06 6.01 (0.87) 4.79% 1.84%/3.10% N/A $110.77 2.27%
Corporate A3/BBB+ 10.78 7.36 1.06 4.20% 3.12% 163 $106.47 4.80%
High Yield B1/B 6.61 4.20 (0.03) 6.61% 8.15% 660 $91.42 3.53%
HY Energy B1/B 6.97 4.73 0.27 6.46% 13.38% 1,132 $72.05 2.59%
Yields presented represent the prevailing market price as of 4/7/2016 and are not representative of a specific issue. The indices used in this report to measure and report performance of various sectors of the market are unmanaged and direct investment in indices is not available per Barclays.
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Fixed Income Total ReturnsSource: CreditSights
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Annual Total Return Ranking by Asset ClassSource: CreditSights
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Source: Walt Handelsman - Newsday
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Economic Growth – 1980-2015Source: BEA & Bloomberg
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Economic Growth – GDPNow ForecastSource: Atlanta Fed GDPNow Model
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Inflation (PCE Core) – 1990-2016Source: BEA & Bloomberg
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Inflation (Core CPI) 1980-2016Source: BLS and Bloomberg
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US Consumer
Retail Sales
Personal Income
Personal Spending
Personal Savings Rate
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US Retail SalesSource: Census Bureau and Bloomberg
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US Personal IncomeSource: BEA and Bloomberg
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US Personal SpendingSource: BEA and Bloomberg
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US Personal Spending vs. Personal IncomeSource: BEA and Bloomberg
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US Personal Savings RateSource: BEA and Bloomberg
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US Manufacturing
Industrial Production
Capacity Utilization
ISM Manufacturing
ISM Milwaukee Purchasers Manufacturing
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US Industrial ProductionSource: Federal Reserve and Bloomberg
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US Capacity UtilizationSource: Federal Reserve and Bloomberg
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ISM ManufacturingSource: ISM and Bloomberg
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ISM Milwaukee Purchasers ManufacturingSource: NAPM Milwaukee and Bloomberg
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US Housing
Historical 30-Year Mortgage Rates
Existing Home Sales
New Home Sales
Housing Starts
Building Permits
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30-Year Fixed Rate Mortgage AverageSource: St. Louis Federal Reserve
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Existing Home SalesSource: National Association of Realtors and Bloomberg
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New Home SalesSource: Census Bureau and Bloomberg
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Housing StartsSource: Census Bureau and Bloomberg
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Building PermitsSource: Census Bureau and Bloomberg
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Key to Economy – Innovative New Jobs
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Beneficiaries of Economic Innovation
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Weekly Initial Jobless Claims
Source: Department of Labor and Bloomberg
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Measures of Unemployment Source: Bureau of Labor Statistics
•U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
•U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
•U-3: Total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
•U-4: Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
•U-5: Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and 8.9% - 7.6%
•U-6: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
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U.S. Unemployment Rate(s) U1-6Source: BLS
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U.S. Unemployment Rate U-3Source: BLS and Bloomberg
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U.S. Under-Employment Rate (U6)
Source: Bloomberg
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U.S. Non-farm Payrolls (1980-Present)Source: BLS and Bloomberg
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U.S. Non-farm Payrolls (1939-Present)Source: BLS and Bloomberg
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Monthly Change in U.S. Non-farm Payrolls Source: BLS and CreditSights
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12-Month Change in U.S. Non-farm Payrolls Source: BLS
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WI Employment – 12-Month ChangeSource: BLS
Area Employed Percentage Change
Employment
Appleton 2,000 1.7% 121,500
Eau Claire 700 0.8% 84,500
Fond du Lac 600 1.3% 47,600
Green Bay 1,400 0.8% 171,000
Janesville-Beloit 2,500 3.8% 67,600
La Crosse-Onalaska 400 0.5% 77,100
Madison 8,400 2.2% 390,100
Milwaukee-Waukesha-West Allis 3,100 0.4% 842,200Oshkosh-Neenah 1,900 2.1% 94,500
Racine -1,000 -1.3% 74,700
Sheboygan 1,200 2.0% 60,200
Wausau 700 1.0% 71,400
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Locations of the Federal Reserve BanksSource: The Federal Reserve
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FOMC – 2016 Voters
On a 1-5 Scale with 1=Dove and 5=Hawk 2016 Score = 3.1 or leaning to the hawkish side
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What’s the Fed Doing? Asset Purchases $4.2 Trillion ($2.4+ Treasuries/$1.8 MBS) Maturing TSY debt principal rolled to TSY auctions Agency and MBS maturing principal rolled into MBS
Not Likely to end until 2017 at the earliest
Interest Rate Policy 0.25%-0.50% Fed funds target rate Hike in was first since December 2008 Previously raised rates in June 2006 - to 5.25% from 5.00% Fed “dot plots” – two 25 bps rate hikes this year
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The Dot PlotsSource: CreditSights & The Federal Reserve
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Fed’s Holdings of U.S. T-Notes & BondsSOURCE: Bloomberg
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The Fed: Taxpayers Hedge Fund
Profits Remitted to Treasury: $97.0 Billion – FY 2014 $79.1 Billion – FY 2013 Average before Financial Crisis - $25 billion Unrealized Gain - $174 billion in 2014 Unrealized Loss - $53 billion in 2013
Pays Banks 0.50% on Reserves Earns 2%-3% on Holdings
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Taxpayer’s Hedge Fund?Source: Forbes & The Federal Reserve
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Source: app.hedgeye.Com
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Oil Prices CollapseSource: Bloomberg
WTI Prices
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U.S. Land Rig CountSource: BHI, Bloomberg, Baird
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US Energy Data Trend TrackerSource: CreditSights
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Single B Energy Yield CurvesSource: Bloomberg
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Moody’s Energy LSI
Liquidity Stress Index: SGL-4 / SGL More SGL-4 Companies the higher the index
Overall LSIMarch – 10.3% February – 9.0%
Energy LSIMarch – 31.6% February – 27.2%
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Oil Prices Collapse Adds to Default CountSource: S&P and Bloomberg
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Source: Clay Bennett.com
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What’s Do Traders Think? Fed Fund Futures – Implied (Chance of 25 bps increase) – April 8
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U.S. Econ Forecasts – StreetApril 8, 2016
Source: Bloomberg
Q1 16
Q216
Q316
Q4 16
Q117
Q217
2016 2017 2018
GDP(2.50%-3.50%)
2.1% 1.8% 1.8% 2.1% 2.4% 2.4% 2.0% 2.3% 2.2%
Existing Home Sales
5.3m 5.4m 5.5m 5.5m 5.5m 5.5m 5.5m 5.6m 5.6m
Industrial Production
-1.4% 0.4% 0.5% 1.8% 2.1% 2.2% 0.3% 2.2% 2.3%
Core PCE 2.0%
1.6% 1.6% 1.6% 1.7% 1.7% 1.8% 1.6% 1.8% 1.9%
(U-3) 4.9% 4.8% 4.8% 4.7% 4.6% 4.6% 4.8% 4.6% 4.7%
Non-farm Payrolls
215k 195k 180k 178k 173k 168k 196K 163k 146K
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U.S. Interest Rate Forecasts - StreetApril 8, 2016Source: Bloomberg
Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17
Fed Funds - UB 0.50% 0.65% 0.75% 0.95% 1.15% 1.35% 1.55%
Fed Funds - LB 0.25% 0.40% 0.49% 0.69% 0.88% 1.08% 1.28%
3-mon Libor 0.63% 0.76% 0.88% 1.07% 1.26% 1.50% 1.75%
2-yr note 0.70% 0.93% 1.08% 1.26% 1.45% 1.61% 1.80%
10-yr note 1.72% 1.92% 2.08% 2.24% 2.39% 2.53% 2.69%
30-yr bond 2.55% 2.74% 2.86% 2.99% 3.07% 3.19% 3.26%
2s/10s Spread 101 100 100 98 95 92 88
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Sources:
App.hedgeye.com BHI Bloomberg Bank America Merrill Lynch Barclays Indices – Total Return Chart Bianco Research LLC Bureau of Economic Analysis Bureau of Labor Statistics Business Insider ritholz.com CBO U.S. Census Bureau Claybennet.com CreditSights Federal Reserve Bank Federal Reserve Bank of Atlanta – GDPNow Model Federal Reserve Bank of New York– SOMA Account Holdings Federal Reserve Bank of St. Louis Goldman Sachs JP Morgan Moody’s National Association of Realtors OMB
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Disclaimers
The opinions expressed are those of the presenters and not necessarily of Robert W. Baird & Co.
Past performance is not a guarantee of future results.
Robert W. Baird & Co., Inc. Member SIPC