There are many factors which can influence the yield curve and there actually is no unifying theory of the determinants of its shape. Three major concepts dominate: 1) the time value of money, which dictates that money lent for longer should command a higher interest rate 2) inflation expectations, where longer term bonds will have a higher interest rate if inflation is expected to rise (and vice-versa) and 3) market supply and demand for specific maturities, pushing rates up or down according to the volume of new issuance and selling or buying by various market participants, often for reason not directly related to the fixed income markets themselves. The U.S. stock market is declining this month as investors brace for comments this week from Fed Chair Jerome Powell at the Jackson Hole Economic Symposium in Wyoming on Friday. Investors are struggling with an increase in yields in August while also monitoring possible knock-on effects from the weak China economic activity (the world’s second largest economy), Fitch lowering the U.S. credit rating, the increased supply of U.S. Treasury issuance to reestablish government funds used during the debt ceiling debt and Japan indicating flexibility to tolerate higher yields. On the wealth planning front, we discuss how Donor Advised Funds (DAFs) may be required to distribute funds.
Click Here to Read the August 21, 2023, Economic Commentary
Click Here to Read the August 21, 2023, Investment Commentary
Click Here to Read the August 21, 2023, Wealth Planning Commentary
