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Treasury Rates Update: January 4th, 2023

Summary: On 12.13.23 the Fed kept rates unchanged however they clearly indicated that up to 3 rate cuts were a distinct possibility in 2024. After that announcement, two senior Fed members indicated that rate reductions could be made later in the year pending economic data.


Upcoming Key Economic Data Releases:

1.5.24 New jobs data for December to be released

1.11.24 CPI data for December to be released

1.31.24 Fed Meeting

 

For the past 2 weeks, 10-year Treasury rates were up 6bp. Past week up 15bp.

 

The red line is the most current rates while the green line is from one week ago.

Longer-term rates increased more relative to shorter-term rates, as such the inverted yield curve is less steep.

For terms 5+ years, the Yield Curve is positive. One month rates were down 1bp.

 

The 10-year US Treasury rate is a vital rate to keep track of. It is used as a benchmark spread for home mortgage rate setting. It is also used for Commercial Real Estate valuation determination.


Below are the daily rates in 2023. Starts off the year at 3.79% and reaches it low of 3.30% on April 5 then rockets up to 4.98% on Oct 19 and then plummets to 3.88% on Dec 31. That is a 22% drop from the high to the year-end. This is huge. Any firm holding this instrument benefited from higher values as well as CRE.


The beginning and year-end values are about equal and both are close to the year’s average of 3.96%. 2023 was a wild ride in rates and hence values.


 

Daily changes are shown below. It is noted that there were more rate decreases of <15bp> than there rate increases of 15bp. Surprisingly larger daily decreases than increases of similar magnitudes.


 

95% of the daily changes were in the blue bars, both increases and decreases. This is 2 standard deviations.


The key takeaway is when a 15bp change occurs, it is a 2 sigma event (i.e. very unusual) based on 2023 rates.


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