Flight to Quality Continues with the US Economy Showing Signs of a Slowdown

Yields plummet again. A weak slate of economic data pulled rates down 8-11 basis points across the curve today to their lowest levels of the year. The 2-year Treasury yield closed at 4.09%, over 25 bps off the YTD highs, while the 10-year yield closed 50 bps below YTD highs at 4.30%. Risk assets were also impacted, with today’s sell-off largely hitting tech stocks. The NASDAQ is now at 19,026, its lowest closing level since November.

The Fed is now largely projected to cut rates twice this year. The sharp decline in rates over the past few weeks has coincided with a shift in expectations that the Fed will be more aggressive with rate cuts in 2025. Fed Funds futures now have over 57 bps of rate cuts priced in for the remainder of 2025, where the Fed is expected to hold rates steady until June or July. That marks a stark contrast from just a few weeks ago, where markets expected only one 25 bp rate cut in 2025 after a rebound in core YoY CPI to 3.3% in January.

US consumer confidence plunges in February. The Conference Board’s gauge of consumer confidence declined 7 points to 98.3 in February, well below the estimate of 102.5 and the largest MoM decline since 2021. The data also marked the third straight drop from a year-plus long high set in November 2024, similar to a recent decline in University of Michigan consumer confidence that was spurred by the highest long-term inflation expectations since 1995. Stephanie Guichard, senior economist of global indicators at The Conference Board, stated that “References to inflation and prices in general continue to rank high in write-in responses… comments on the current administration and its policies dominated the responses.”