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Spinnaker Report: July 2019 Quarterly Commentary

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Is this the new normal? Every economist or interest rate forecaster was wrong as the yield on the 10- year US Treasury note declined to just under 2% in June 2019. This is well below the most optimistic projection of 2.6%!  Even the Federal Reserve now looks to be backtracking and the futures market is predicting at least one rate cut in 2019 versus what most anticipated of another round of rate hikes. What happened to change the psychology 180 degrees? Uncertainty is the probably the most accepted reason. Continuing trade friction, lessoning effects of the 2018 tax cut stimulus, geopolitical concerns all enter into the equation. Instead of the Fed leading the bond market just the reverse has occurred. The yield curve has inverted as short-term rates are tied to Federal Reserve policies and there has been a strong bid for longer maturities. This historically has been a precursor towards recession and economic slowdowns, and reports have shown a slowdown had indeed been occurring, especially globally. Meanwhile, US interest rates are higher than Europe’s and have drawn more international money onshore.

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Spinnaker Report vol 31-July 2019-OPT
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