MFA Musings: 6/18/18
FOMC unanimously voted to raise the overnight fed funds rate 25 basis points.
Last week the FOMC unanimously voted to raise the overnight fed funds rate 25 basis points. Now the top yield is 2.00%. With the FOMC leaning towards two more rate hikes in September and December, we may see a fed funds rate of 2.50% this year.
The FOMC has been grumbling about raising rates slowly to a “neutral” position; believed to be around a yield of 3.00%. Given this position, we would expect two more rate hikes in 2019. The yield curve has flattened on this news. The spread between the 2-year US Treasury and the 10-year US Treasury has narrowed to 40 basis points.
Based on your balance sheet composition as a margin business, as short-term interest rates rise we would expect a potential increase in your cost of funds and tightening margins.
Please contact your relationship manager on how to best use this market move in your favor and to maintain margins.
Thank you and have a great week!