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...
Wow! Another shoe (or rather a steel-toed boot) has dropped as markets anxiously awaited more clarity regarding President Trump’s tariff agenda. Unfortunately, an entire crew of construction workers is likely occupying the floor over our heads, so we can expect to hear more boots hitting the floor as time progresses.
Equities plummeted following Wednesday’s tariff announcement, blowing past technical support, then continued to drop through the remainder of the week. As the risk-off trade gripped the stock market, Treasuries rallied significantly with investors flocking to the relative safety and liquidity of US government debt. Equities entered correction territory and are within a few percentage points of a full bear market -20% move. As demonstrated in the below chart Treasuries rallied with rates pushing well below the 4% support level before retracing much of the move before the market close.
Typically, the first Friday of each month is reserved for the always-important employment data, which notably took a backseat to the tariff announcement. Data was somewhat mixed with higher-than-expected Nonfarm Payroll data with +228k jobs added and +0.3% hourly earnings though Unemployment ticked up to 4.2%. The news was met with relative calm, then quickly shrugged off as the tariff narrative regained the market's attention. Later, in prepared remarks, Chair Powell sounded quite hawkish highlighting that the larger-than-expected tariffs are likely to boost inflation and slow growth. He further reiterated the patient monetary policy approach will continue as policymakers await more data. This should also allow for tweaks and changes to occur as foreign counterparties either respond in kind or seek resolution at the negotiating table.
From the Trading Desk (with contribution from Ryan Riffe)
The municipal market largely followed the lead of Treasuries last week as the flight-to-quality trade lent its strength to municipals. The AAA MMD curve experienced very aggressive bumps (lower yields) as buying activity to lock in rates picked up significantly following President Trump’s tariff announcements. Ratios as a percentage of Treasuries remain at relatively attractive levels, especially further out the curve. Cyclical pressures as April tax time nears, along with larger than typical net issuance, positions the asset class as a compelling relative value investment. Supply is expected to remain robust as reinvestment monies should be on the lighter side for the month.
Weekly New Issue Municipal Supply: $10.8 billion
Municipal Ratios
2-Yr 67%
3-Yr 68%
5-Yr 70%
10-Yr 74%
30-Yr 91%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
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