The President has been frustrated with the Federal Reserve’s prior rate hikes and now the lack of a more substantial cut in rates. Just the other day, Trump was quoted as saying, “Obama had zero interest rates, we have ‘normalized’ rates. While the Fed hasn’t helped the President’s cause, he has seemingly taken matters into his own hands with his policy towards China. Each time he ratchets up the rhetoric against China, it tends to put additional downward pressure on interest rates, and following Thursday’s tweets, the yield on the 10-year plummetted below 1.9%.
Ironically enough, the last time the 10-year yield was this low was on Election Day 2016. While short-term borrowing costs are up as the FOMC has hiked rates during Trump’s time in office, the yield on the 10-year isn’t much different. Under the eight years of President Obama, the yield on the 10-year averaged 2.47%, while under Trump the average yield has been 2.57%.
The chart below shows a shorter-term look at the 10-year yield over the last year and it has practically been in free-fall the entire time. Ever since late 2018, every time the yield has attempted to make a move above its 50-DMA, it has reversed lower, with the most recent leg lower in May coinciding with another series of tweets concerning tariffs on Chinese goods.
While not a lot of stocks have benefitted from the President’s policy tweets on Chinese tariffs, the impact of lower interest rates has been cheered on by the homebuilders as they have practically been a completely inverse image of the move in rates. Just yesterday, the group hit a new high before pulling back a bit, but lower long-term interest rates mean lower mortgage payments, and that helps to make housing more affordable for millions of millennials looking for a place of their own. Start a two-week free trial to Bespoke Premium to receive our best equity research on a daily basis.