Though I risk sounding like “Captain Obvious”, markets were much calmer last week following one of the most volatile markets in recent years. A natural period of consolidation is typical after a chaotic market finds solid footing. Additionally, the holiday-shortened week offered participants a welcome respite from stormy market conditions that have exacerbated everyone. By no means, however, should anyone think that the volatile market conditions have ended; more likely than not, we are simply in the eye of the hurricane, waiting for the back wall to approach. Because of the long holiday weekend, traders were more skeptical of leaning one way or the other with regard to positioning, given the fact that we have three full days of Trump tariff posts to be concerned about.
Headline risk continues to define the tone of the market. President Trump’s tariff agenda, his proclamations of progress on trade talks with some counterparties, and his criticism of Chair Powell certainly kept things interesting recently. If we learned nothing over the past several weeks, we should not get comfortable that we know what to expect next. Furthermore, the biggest question remains regarding how things will proceed with the United States’ third-largest trading partner, China. President Xi has taken a much less conciliatory stance than officials of other countries and remains the outlier regarding demonstrating no willingness to approach the negotiating table. On another note, Chair Powell reiterated the dual mandate of the Fed. However, he leaned more heavily on stressing the need to focus on price stability over jobs, which are still within a full employment range. I remain more concerned about the implications of inflation and the possibility of higher rates in our future. Additionally, I remain steadfast in my expectation of fewer rate cuts than the two that comprise the latest Fed forecast.
From the Trading Desk (with contribution from Ryan Riffe):
Munis followed the strength in Treasuries on Monday and Tuesday with a firmer tone. The AAA MMD scale was lower in yield by as much as 16 basis points as we entered Wednesday. The new issue calendar remained elevated as many deals were postponed last week. Negotiated deals were not only oversubscribed but had to be repriced to lower yield targets, while competitive deals were more aggressively priced. The reengagement of buyers was certainly a positive sign after the bond rout last week. Although active inquiries focused on the primary market on Monday and Tuesday, there was decent follow-through on Wednesday for secondary activity. Without a doubt, there is a cautionary feel to the municipal market given the volatility seen throughout April. However, this shortened holiday week offered a glimpse of hope as we nudge closer to the much-desired summer months. With the April 15th tax deadline behind us, we can expect better buy-side engagement as investors can reengage without the distraction of tax payments to be made. New issue supply ticks slightly higher to around $8.46 billion but remains lower than the YTD average of $8.93 billion.
Ratios:
2-Yr 80%
3-Yr 80%
5-Yr 80%
10-Yr 79%
30-Yr 93%
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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