The ever-shifting dynamic of the global tariff situation created massive moves in the markets last week, adding to the prior week’s volatility. Equities sold off before recovering but tested -20% bear...
The markets continued their roller coaster ride last week with both equities and rates experiencing noteworthy swings over the course of the week. Inflation concerns led rates to test their highest level in over a month with 10-Year Treasuries nearing 4.40% before reversing course and closing back around the 4.25% area as worries about the health of the economy took the lead. The S&P 500 forcefully experienced a broad sell-off and gave back the gains it achieved over the past 2 weeks, led by Big Tech getting hammered on concerns about tariff implications, inflation, and consumer spending. Investor anxiety remains elevated as we await more news regarding the April 2 tariff deadline.
Last week’s releases included a number of data points that continue to keep investor uncertainty and angst at elevated levels. Consumer Confidence again declined to 92.9, keeping the index below the important 100 level suggesting pessimism is well entrenched. University of Michigan Sentiment was revised lower reiterating consumer angst with a reading of 57.0 for the month of March. Given the importance of the consumer to the domestic economy sustained pessimism is not a recipe for a constructive economic environment. Finally, core-PCE came in higher at 0.4% MoM lifting the YoY figure to 2.8%. Clearly, it does not demonstrate the desired progress toward the Fed’s 2% goal. These figures, coupled with the uncertainty of the ongoing tariff situation have failed to instill confidence in the markets. I expect equities will continue to react negatively to the slowing economy and rates will eventually succumb to the growing inflationary pressures and reach higher yields at some point in the coming months. Investors may have the opportunity to buy the dip in equities as the 5400 and 5200 areas mark meaningful support. I await the catalyst to push Treasuries up above 4.40 to the next support around 4.55%.
From the Trading Desk (with contributions from Ryan Riffe)
The municipal market experienced another tumultuous week as April can't come soon enough. The AAA MMD scale was cut (yields were increased) from 4-12 basis points across the curve with the largest impact beyond 20-year maturities. The supply/demand imbalance was a consistent issue throughout the month. Liquidity in the secondary market continues to be a challenge given the steady increase in both dealer inventory and syndicate new issue balances. The 10-year ratio (77% of US Treasuries) has now reached its most attractive level since 2023. Although ratios and absolute yield levels are compelling, demand has yet to meaningfully rise. This dynamic was evident as municipal bond funds experienced another week of outflows. Along with March, April marks one of the weakest months of the year for reinvestment capital. For municipal bonds to gain traction, there will need to be more clarity for not only the economy but future tax policy regarding the exempt status of municipal bonds.
Municipal New Issue supply $9.4 billion ($8.66 billion Tax-exempt, $0.75 billion Taxable)
Ratios
US TSY 2yr 3.910% 70%
US TSY 3yr 3.894% 72%
US TSY 5yr 3.979% 74%
US TSY 10yr 4.253% 78%
US TSY 30yr 4.631% 92%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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