Yields Hit Highs Then Reverse In October – Fixed Income Review

Yields on long-term Treasury bonds fell at the end of October as the U.S. Fed, the European Central Bank (ECB), and the Bank of England held rates steady. Many analysts expect to see an unwinding of tight monetary policy in the coming months, leading to a possible decrease in bond yields. The yield on the 10-year Treasury ended October at 4.88% after reaching a 16-year high of 5% earlier in the month, in an apparent downward trend. Stubborn inflationary pressures may prevent rates from falling too quickly. (Sources: Treasury Dept., Bloomberg, EuroStat)

Global Stocks Hesitate As Uncertainties Mount – Equity Overview

Global stocks hesitated in October as concerns mounted regarding the escalation of the crisis in the Middle East. Earnings and economic headwinds are a focus as several companies report slowing earnings growth and conservative growth expectations. Despite challenges, major domestic equity indices minimized devaluations during the month of October, ending the month only slightly lower than the end of September. International developed and emerging market indices saw more of a pullback in October than U.S. indices, due in large part to a stronger dollar following the start of the Middle East conflict. (Sources: S&P, Dow Jones, Bloomberg)

Bank Deposits Heading Lower – Banking Sector Overview

Consumers have been depositing less money into their bank accounts over the past three years. As the government response to the pandemic shuttered restaurants and retail stores in 2020, bank deposits increased as consumers spent less and instead saved their cash. Generous government stimulus programs led to consumers saving more as unused cash landed in bank deposits.

When businesses reopened and consumers began spending again in 2021, bank deposits fell as consumers decided to spend rather than save. Inflation contributed to lower savings and falling bank deposits as consumers found themselves spending more as the post-pandemic recovery drove prices higher.

Recent higher interest rates offered by banks enticed some to deposit more, yet deposits remain much lower than they were prior to the pandemic. Banks struggled for years to capture deposits as rates stood at multi-decade lows up until 2022, when the Fed commenced its rate hike strategy. Bond analysts note that rates may start to decline as the Fed reacts to slowing economic data signaling dissipating inflation and consumer confidence.

Source: Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series

How Deflation Develops and What It Does – Inflation Overview 

A gradual devaluation or decline in overall asset prices is known as deflation, which means lower prices on most goods and services. This creates an unfavorable environment for companies to maintain healthy profit margins and support wages.

Economists suggest that long-term yields can have a direct correlation to deflation. As the 10-year Treasury bond yield fell since its peak in October, nominal GDP along with inflation also slowly fell. Real wages contracted, leading consumers to refuse to pay higher prices and to demand more lower-priced goods. Retail stores resorted to discounting prices in order to maintain sales and reduce unwanted inventories.

Commodities across the globe show deflationary characteristics as prices have pulled back from the highs of 2021 and 2022, including prices for lumber, natural gas, aluminum, copper, and wheat. The International Energy Association (IEA) for the first time predicted that global demand for oil will reach a peak this decade, indicative of possibly lower oil and gasoline prices in the future.

Fed Chair Jerome Powell mentioned that elevated long-term bond yields lessen the need for tight monetary policy, meaning that the Fed may not need to raise rates further.

Sources: Treasury Dept., Federal Reserve, IEA

Social Security Benefits Going Up 3.2% in 2024 – Retirement Planning

Social Security recipients are due to receive an increase of 3.2% in 2024, the same as last year’s increase.  For many recipients, the increase in payments will go toward higher living expenses as well as increased Medicare premiums. The increase in benefit payments is effective in late December 2023 for Supplemental Security Income (SSI) recipients and in January 2024 for Social Security recipients.

Some are concerned that the Social Security benefit increase may not cover expenses that are rising at a faster pace, including essential items such as food, housing, and energy.  Medicare Part B premiums are expected to increase 5.9% at the beginning of 2024, nearly double of the 3.2% COLA increase for Social Security.

Social Security was established on August 14, 1935, when President Roosevelt signed the Social Security Act into law.  Since then, Social Security has provided millions of Americans with benefit payments. The payments are subject to automatic increases, also known as cost-of-living adjustment (COLA), which has been in effect since 1975.  Over the years, recipients have received varying increases depending on the inflation rate.

The Social Security number (SSN) was created in 1936 for the sole purpose of tracking the earnings history of U.S. workers, to determine Social Security benefit entitlement and computing benefit levels.

Source:  Social Security Administration