Interest rates continued their steady march towards lower levels. Market sentiment has shifted meaningfully lately, with concerns that economic growth could experience a meaningful decline. Data has been piling up suggesting that the economy may not be as healthy as market participants had previously assumed. Notable data points that support this narrative are detailed in the chart below.
The weekly chart for 10-Yr UST indicates the size and momentum of the move toward lower levels. Notably, the market has had seven consecutive weeks of lower closes and is converging near major support at 4.15%, just below this week’s close. The psychologically relevant 4.00% yield is on the radar screen if this level does not hold.
Because of the near-term concerns about the slowing economic environment, the dreaded word stagflation has begun to be thrown into the mix as fears about inflation continue to hang over the market. For this reason, I remain concerned about inflationary economic risks, especially with President Trump’s trade and tariff policies, which are continuing to develop. I am not yet ready to throw in the towel for higher interest rates at some point this year, but like the frog in the pot of water on the stove, I’m beginning to feel the water getting uncomfortably hot. I expect continued volatility as uncertainty causes market participants to be skittish about the tone and direction of the economy.
From the Trading Desk (Ryan Riffe)
The municipal market followed the lead of Treasuries with another positive week. The AAA MMD scale finished tighter across the curve with the most substantial demand in the 11- to 13-year maturities. Although the upcoming months of March and April loom ahead with lighter redemption figures. Positive sentiment continues in both the primary and secondary markets. Robust SMA demand for high-taxed deficit states (NY, MA, CT, NJ, & CA) has kept spreads in negative territory for these regions. As mentioned last week, demand has moved further out of the curve as the MMD scale continues to steepen. Most negotiated deals were heavily oversubscribed and were repriced to lower yield targets. Strong primary demand was evident with the NYC Water deal being upsized to $950 million from $600 million. We will closely monitor the market as the 30-day visible supply increases from $11.6 billion to $14.8 billion in the face of depleting March and April reinvestment dollars. This week’s supply is expected to be around $9.7 billion, a slight increase from the week prior and a little higher than the 2025 weekly average.