Equities Price the Best Case, Bonds Await Further Proof
Equities Price the Best Case, Bonds Await Further Proof
Equities pushed to a new all‑time high this past week, with the S&P 500 Index reaching levels as high as 7,147. The rally has been driven largely by optimism following President Trump’s recent statements suggesting the conflict is nearing an end. A closer reading of developments, however, suggests that Iranian officials have yet to demonstrate meaningful urgency or commitment toward concluding a durable agreement.
Bond markets have reflected a more measured response. The 10‑year Treasury yield briefly tested below 4.25%, though rates failed to mirror equity‑market enthusiasm. As shown in the chart, yields have reversed the sell‑off that began at the onset of the conflict and peaked near 4.48%. The trend toward lower yields now appears well established and could accelerate on credible confirmation of de‑escalation—whether through a formal end to hostilities, a reopening of the Strait of Hormuz, or other constructive developments. A move below 4.10% would not be surprising, though we ultimately expect yields to stabilize within the pre‑conflict range of roughly 4.00%–4.20%.
Our desk has continued to methodically reduce short exposure as yields have trended lower following the reversal from the recent rate peak. The market structure now reflects a series of lower highs and lower lows in yields, reinforcing the view that the trend has turned. With greater confidence, we believe the path of least resistance is now toward lower yields. As the saying goes, the trend is your friend.
From a technical perspective, the next downside target for 10‑year Treasuries sits just below 4.20%, with the sub‑4.10% area representing the next meaningful support zone. While intermittent volatility is likely given ongoing geopolitical uncertainty, the more compelling tactical opportunity is to fade any near‑term backup in yields—selling strength and positioning for a rally on constructive news out of the Middle East.
Oil prices have also retraced meaningfully from the elevated $ 100-per-barrel levels that defined the post-conflict range. Prices dipped into the mid‑$80s on Friday following reports that Iran would suspend its nuclear program. While renewed escalation or a breakdown in negotiations could push prices higher again, foreign‑policy and military experts caution that Iran’s historical pattern suggests any resolution may prove temporary, with the potential for renewed tensions several years down the line.
While markets remain heavily focused on headlines tied to the Iran conflict, the coming week brings additional developments that warrant attention. Most notably, the confirmation hearing for Kevin Warsh’s nomination as Federal Reserve Chair is scheduled to take place. Investors will be listening closely for insight into his prospective policy priorities. That said, the process may not be smooth: Senator Thom Tillis (R‑NC) has reiterated his opposition to the nomination until the DOJ probe involving Chair Powell is concluded—setting the stage for a potentially contentious hearing.
From the Municipal Desk (with contributions from Ryan Riffe):
The municipal market had an expectedly quiet week given Wednesday’s April 15th tax deadline. Front‑end yields sold off by 3 basis points in the first half of the week, likely the result of account liquidations to meet tax payments. News late in the week that a deal to end the conflict in Iran was in its final stages sent bond markets soaring early Friday morning. While municipals did not fully match the strength seen in Treasuries, benchmark yields did decline by as much as 4 basis points in certain parts of the curve.
There is certainly a sense of optimism reverberating through the market; however, seasonal challenges are likely to persist in the near term. Reinvestment capital will remain limited while weekly supply is expected to stay elevated. Fund flows will be critical to the municipal market’s ability to navigate the spring months and will therefore be closely monitored. Volatility is likely to persist, which should continue to keep municipal money market fund balances elevated. These levels will serve as a useful gauge of pent‑up demand as greater clarity emerges around the conflict in Iran.
Looking ahead to the final full week of April trading, the market is set to absorb approximately $13 billion of new‑issue supply. For the most part, both negotiated and competitive deals have been well received. We expect the secondary market to remain choppy as investor focus continues to center on the primary calendar.
Weekly Supply @ $13.3 Billion
2-YR Ratio @ 62%
3-YR Ratio @ 62%
5-YR Ratio @ 66%
10-YR Ratio @ 68%
30-YR Ratio @ 88%
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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