PEEK OF THE WEEK
February 29, 2018
Leif Hagen & Donna Roberts
The Markets
U.S.
Treasuries are offering a lesson in supply and demand.
Last week, the U.S. Treasury
auctioned $258 billion in bonds. Treasury auctions are the way the United
States government finances its debt. The Treasury sells short-, intermediate-,
and long-term IOUs, known as bills, notes, and bonds. When investors and
governments purchase bonds, they agree to lend money to the United States. In
return, the United States agrees to pay an amount of interest over a certain
period of time. At the end of that time, the government is expected to repay
the money borrowed.
The price and interest paid on
U.S. government debt is determined by supply and demand. When there are few
bonds and a lot of demand, prices rise and interest rates fall. When there are
a lot of bonds and little demand, prices fall and interest rates rise.
Last week, Barron’s reported, “The law of supply and demand meant that the
glut of new Treasuries temporarily drove down prices and pushed up yields. The
10-year Treasury climbed during the week – brushing 2.95 percent – but
ultimately lost half a basis point, ending at 2.87 percent. (A basis point is a
hundredth of a percentage point.)”
The Treasury increased its debt
issuance to fund tax reform and the two-year federal budget. Reuters reported, “…tax reform is
expected to add as much as $1.5 trillion to the federal debt load, while the
budget agreement would increase government spending by almost $300 billion over
the next two years.”
A surplus of Treasury bonds, in
tandem with decreased demand as the Federal Reserve reduces the holdings it
accumulated during quantitative easing (an
unconventional monetary policy in which a central bank purchases government
securities in order to lower interest rates, increase the money supply, and
stimulate the economy), could push Treasury rates higher. In addition, MarketWatch reported the Federal Reserve
appears to be committed to gradually increasing the Fed funds rate to avoid an
overheating economy and keep inflation down.
Higher
interest rates may be coming.
Data as of 2/23/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.6%
|
2.8%
|
16.3%
|
9.2%
|
13.1%
|
6.3%
|
|
Dow Jones Global ex-U.S.
|
0.1
|
1.6
|
19.3
|
4.9
|
4.6
|
0.7
|
|
10-year Treasury Note (Yield
Only)
|
2.9
|
NA
|
2.4
|
2.1
|
1.9
|
3.9
|
|
Gold (per ounce)
|
-1.8
|
2.4
|
6.4
|
3.3
|
-3.5
|
3.5
|
|
Bloomberg Commodity Index
|
0.6
|
0.6
|
1.5
|
-4.5
|
-8.4
|
-8.2
|
|
DJ Equity All REIT Total
Return Index
|
-0.3
|
-8.0
|
-3.6
|
2.2
|
7.4
|
6.9
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
olympic athletes have to pay the bills, too. Not
every American Olympian and Paralympian is a
household name. Money.com reported,
“These athletes don’t have the same kind of lucrative sponsorship deals as
Olympic standouts like snowboarder Shaun White or alpine skiing
star Lindsey Vonn – so they have to make ends meet, which can often mean
squeezing in extra shifts during the off season, heading to the gym early in
the morning before work and moving from a full-time position to a part-time one
with no replacement for those lost wages.”
So, how do lesser-known athletes pay the bills while
training?
·
Sled hockey player
Josh Pauls is a sales account executive. His teammate Steve Cash is a personal
banker.
·
Pairs figure skater
Chris Knierim works as an auto mechanic and wants to have his own auto shop
someday.
·
Biathlon competitor
Lowell Bailey is a singer and songwriter who plays in bluegrass bands.
·
Curling team member
Nina Roth is a registered nurse. Her teammate Tabitha Peterson is a pharmacist.
·
Snowboarder Jonathan
Cheever is a licensed plumber.
·
Luger Emily Sweeney is
a member of the National Guard, and so is bobsledder Nick Cunningham.
·
Short track speed
skater Jessica Kooreman has a real estate license.
·
Luger Justin Krewson
is a firefighter.
·
Snowboarder
Mike Schultz designs and engineers prosthetics.
·
Nordic skier Kendall
Gretsch works in tech support.
There is a lot to admire about Olympic and Paralympic
athletes.
Weekly
Focus – Think About It
“There are only three ways to meet the unpaid bills of
a nation. The first is taxation. The second is repudiation. The third is
inflation.”
--Herbert
Hoover, 31st President of the United States
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
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* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
* To unsubscribe from the
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Sources:
https://www.barrons.com/articles/treasuries-undergo-a-glut-check-1519438243 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_Barrons-Treasuries_Undergo_a_Glut_Check-Footnote_1.pdf)
http://www.morningstar.com/cover/Classroom.html (Click on Bond Curriculum, Buying Bonds, Things to
Consider When Buying Bonds) (or go to
https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_Morningstar-Things_to_Consider_When_Buying_Bonds-Footnote_3.pdf)
https://www.aol.com/article/finance/2018/02/12/12-day-jobs-of-the-winter-olympics-athletes/23359714/#slide=7241016#fullscreen (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_AOL-Day_Jobs_of_the_Winter_Olympics_Athletes-Footnote_9.pdf)
