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The Interbank: What the Federal Reserve is looking at in terms of rates at 8:35 am EST, 25 August 2023.

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The quick take …

The 30-year and 10-year bond rates appear to have reversed from yesterday. The longer term 30-year should in theory be higher than the 10-year. Our forte is not bond analysis but in theory this rate relationship typically indicates that the markets are seeing a decline in risk. The further out the maturity, the riskier the asset in terms of returns and this risk should be, as shown here, higher the longer the period to maturity.

The next two-day Federal Open Market Committee meeting commences on 20 September 2023. Minutes from that meeting should provide the Fed’s insights into the decline in rates. Question is whether this is just a bump in the road toward increasing rates or is the decrease indicia of reduced economic activity ahead.

Alton Drew

25 August 2023

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Fed Funds Futures.

30-Day Federal Funds Futures rate=94.545

Source: CME Group.

Federal Reserve Reference Rates.

Discount window rate=5.50%

Interest on reserve balances=5.40%

Effective federal funds rate=5.33%

Overnight reverse repo rate=5.30%

Source: Board of Governors of the Federal Reserve System. Federal Reserve Bank of New York.

Treasurys.

30-year rate=4.27%

10-year rate=4.19%

Source: Board of Governors of the Federal Reserve System.

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