As part of its economic profile, U.S. financial markets declined for the third consecutive quarter from July to September 2022.

According to Trustco Bank Corp, the U.S. continued to feel the impact of several economic areas, in addition to reacting to global concerns.

Continued inflationary pressures, rising interest rates, pandemic concerns, supply chain bottlenecks, the Ukraine war and rising Treasury yields continued to worry investors.

In the third quarter of 2022, the S&P 500 Index declined 5.28 percent and the Dow Jones Industrial Index declined 6.66 percent.

This consecutive quarterly decline in 2022 comes after the economy experienced continued improvement throughout 2021.

The average rate on the 10-year Treasury note was 3.10% during the third quarter of 2022, compared to 2.93% in the second quarter of 2022, an increase of 17 basis points.

Economic profile

The average rate on the 2-year Treasury note increased 66 basis points to 3.38 percent.

As a result, the spread between the 10-year and 2-year Treasury bond declined from 0.21 percent on average in the second quarter to -0.28 percent in the third quarter, resulting in an inverted yield curve.

Generally, steeper yield curves are favorable for portfolio mortgage lenders such as TrustCo.

The Fed Funds target rate increased 25 basis points in March 2022, 50 basis points in May 2022, 75 basis points in June 2022, 75 basis points in July 2022, 75 basis points in September 2022, and another 75 basis points in November 2022 to reach 3.75% to 4.00%, the highest rate since 2007, with additional hikes expected.

Interest rate changes could impact interest-bearing assets, such as loans, investment securities and cash balances, as well as interest-bearing liabilities, primarily deposits and short-term borrowings.

In addition, unrealized gains and losses on available-for-sale securities, the demand for products, the ability of borrowers to repay loans and the number of defaults could also be affected.

Spreads on most asset classes relative to Treasury comparative yields, including agency, corporate, municipal and mortgage-backed securities, have widened compared to levels seen in recent years.

Consequently, changes in rates and spreads continue to be affected by the pandemic and global economic concerns.