As you know, the Federal Reserve lowered the fed-funds rate 0.25% at their meeting at the end of July. I’d call the decrease the most anticipated – unanticipated – anticipated event of the summer. As we chatted late last year, and early this year, the tea leaves showed a steady-handed Fed, with limited (to no) desire to raise rates any further. Then, in March, the discussions in the markets of a potential rate decrease started surfacing (you may recall the James Mackintosh article from March 24, published in The Wall Street Journal which forecast a possible rate cut in 2019). So, depending on your last check of the fed temperature (be it Spring of 2019 or fall of 2018), the cut last week was either completely anticipated, or unanticipated.
What happened after the Fed meeting definitely caused the plot to thicken a bit. Ongoing trade negotiations and overall weakness appearing overseas has led to some volatility in the rate markets. I draw your attention to the 10 Year Treasury. While relatively flat around 2.00% through June and July, the benchmark rate has dropped to 1.64% as of August 12, nearing a 3 year low. While we do not price our loans off of the 10 Year Treasury, it is a good indicator of the general conditions of the rate world.
The 5 year fixed rate product (which is our most commonly funded product) has seen a similar variance and decline that the 10 Year Treasury had. What’s the important take away? 5 year rates for customers are mirroring pricing we saw 3-5 years ago, when we were referring rates as “historically low”.
As usual, what happens from here is anyone’s guess. Continued market volatility would most likely result in continued rate volatility. Of course this time last year we were discussing how rates were going to continue their steady march upward for the foreseeable future. There is some talk about another fed decrease before the end of the year, and once any adjustment on that front occurs, I’ll be sure to pass that along.
Bottom line, as I’ve consistently mentioned, now is a great time to finance an aircraft.
- Commentary compliments of Mike Smith, Scope Aircraft Finance.