The Path Forward
The Path Forward
In a recent commentary, we highlighted the need to take Treasury Secretary Scott Bessent’s focus on bringing longer dated Treasury yields down both ‘seriously and literally’. Markets were moving in his favor through March, as the 10-year Treasury yield fell by 60 basis points to 4.0% since the beginning of the year. However, Liberation Day introduced a dose of volatility, driving the term premium (the compensation for uncertainty regarding the future path of interest rates) up by 58 basis points to 0.84%, the highest level since 2014. This is a main driver behind the recent upward movement in yields.
Since April 2nd, trade tensions have eased, but any resurgence of these tensions is likely to rekindle upward pressure on the term premium. Despite this, we continue to view the ‘fair value’ for the 10-year Treasury as being within the range of 4%-4.5%. It has consistently traded within this range since February, so we remain comfortable with our neutral duration positioning across fixed income portfolios.
Looking ahead, the market is pricing in three rate cuts for 2025, bringing the Fed Funds rate to 3.50%-3.75%. During last week’s FOMC meeting, Chairman Powell expressed heightened concern over stagflation, with the Committee’s press release adding new language to the effect that, “the risks of higher unemployment and higher inflation have risen.” To the dismay of the current administration, the Fed is taking a ‘wait-and-see’ approach, awaiting new data to form a clearer picture before pulling the trigger on rate cuts. While we still anticipate some easing later this year, the near-term outlook remains murky and new policy initiatives will be carefully considered by the Fed when determining the path forward.
Disclosures & Important Information
Any views expressed above represent the opinions of Mill Creek Capital Advisers ("MCCA") and are not intended as a forecast or guarantee of future results. This information is for educational purposes only. It is not intended to provide, and should not be relied upon for, particular investment advice. This publication has been prepared by MCCA. The publication is provided for information purposes only. The information contained in this publication has been obtained from sources that
MCCA believes to be reliable, but MCCA does not represent or warrant that it is accurate or complete. The views in this publication are those of MCCA and are subject to change, and MCCA has no obligation to update its opinions or the information in this publication. While MCCA has obtained information believed to be reliable, MCCA, nor any of their respective officers, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.
© 2025 All rights reserved. Trademarks “Mill Creek,” “Mill Creek Capital” and “Mill Creek Capital Advisors” are the exclusive property of Mill Creek Capital Advisors, LLC, are registered in the U.S. Patent and Trademark Office, and may not be used without written permission.