Current Dynamics

Though U.S. Treasury yields rose modestly in April, rates past 3-months remained considerably lower for the year so far as concerns over slow growth and low inflation continued to dominate.  Rate volatility held near the lows for this year during April as uneven economic data, higher energy prices, a patient U.S. monetary policy stance and global uncertainty provided some degree of offsetting inputs for the U.S. government debt sector. 10-yr UST yields ended April 105 bps above 2-yr yields, unchanged to March and in line with this year’s average so far.  Global economic uncertainty, a somewhat more robust commodity sector and notable political distractions set the backdrop heading into May.

Risk Appetite

Market volatility was generally more subdued in April as risk asset valuations, including credit, equity and commodity sectors, moved higher for a second month.  The constructive market backdrop coincided with softness in the U.S. dollar as senior Fed officials signaled they were in no rush to raise interest rates as overall U.S. economic data remained inconsistent and global uncertainties persisted.  Investors had better entry points compared to earlier this year when high volatility and downward price momentum, in risk assets, dominated … the sustained low rate backdrop proved to be a more dominant theme over the past 2 months compared to more frequent expectations of interest rate normalization earlier this year.

Libor Expectations

The April 27th FOMC policy statement reiterated that the Fed will take into account a wide range of information in making its determination of the timing and size of future interest rate adjustments.  On March 16th, the FOMC released its latest economic projections and a revised assessment of the “appropriate” timing of policy firming. The latest ‘dot plot’ reflects two 25 bps Fed rate hikes this year versus four communicated in December. The FOMC’s median estimate for the fed funds target at Y/E 2016 was lowered by 50 bps to 0.875% which reflects the Committee’s cautious outlook and desire for a gradual path to normalizing rates. Observing US Libor expectations may help in determining shifting views on potential rate actions.

Interest Rate Management (IRM)

As part of the ongoing divestiture activities across GE Capital, the GE Rates site will be shut down after June, 1st 2016.

Variable rate debt financing may create interest rate risk for the corporate borrower. The IRM team gives GE Capital borrowers access to providers of interest rate hedging transactions to mitigate that risk.

The following publications summarize key events, economic data, and indicators that influence markets.