Markets were in full consolidation mode last week, a needed respite following the drastic moves following the previous week’s NFP adjustments. Treasuries faded after extending into overbought territor...
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Markets were in full consolidation mode last week, a needed respite following the drastic moves following the previous week’s NFP adjustments. Treasuries faded after extending into overbought territory, and the S&P 500 climbed upwards but failed to make a new high. Notably, the Treasury auctions were weak last week with tails suggesting price exhaustion on the new supply. The news cycle focused heavily upon the increased potential for a rate cut at the September FOMC meeting; President Trump's decisions to be made to fill Kugler’s open spot at the Fed, and chatter about Waller’s candidacy as Powell’s eventual replacement.
As mentioned above, rates retraced some of the previous Friday’s move. The 4.18% area in 10-Yr Treasuries represented strong support that held, and the market moved meaningfully higher. Yields below 4.25% will be tough to maintain, and the market is poised for a technical move to revisit 4.38%. The above chart for 10-Yr UST Futures contracts identifies the upward price resistance at which I suggested a sale (yellow line), which coincided with the 4.185% cash level. Additionally, it shows the gap between 111-28 and 111-01, the top of which was visited on Friday before the close. This range represents single-prints in the futures contract from the NFP day rally, which typically get filled once the range is revisited. I expect this move to occur early this week. Such price action would equate to a move in cash 10’s back to the 4.38% level, which was where the market was prior to the NFP data. Capturing this full move would equate to approximately 1.5 points of profit on a trade fading a strong resistance area with technical justification to retrace back to where prices started.
I remain skeptical that the Fed will cut rates this year, though my conviction on this point is wavering. Tariff-related inflation is beginning to show up in the data and will likely increase as we move through the remainder of the summer and into the fall. Despite the shock revisions to NFP data indicating a cooling of the labor market, the unemployment rate remains within the full-employment range. However, the Committee could abandon the patient data-centric approach to decision-making and justify cuts in a preemptive move to stave off the negative implications to the economy should jobs experience further pressure. I am paying careful attention to ALL the commentary coming from the Fed to ascertain if there is enough consensus building to cause a shift and rate cuts become imminent.
From the Municipal Desk
The municipal market performed well throughout the week, with yields lower than the previous Friday across much of the curve by 3 to 4 basis points. Secondary trading activity remained robust as investors were attracted to falling yields, and August reinvestment money was being put to work. Notably, municipal market performance edged closer to positive territory with a solid week of returns, bringing YTD performance to -0.16%. The new issue market was similarly well received, as most deals were well subscribed. This week’s new issue calendar comes in just shy of $11 billion and slightly above the $10.7 billion average weekly pace in 2025. Ratios remain attractive beyond 10 years as the heavy supply picture continues to create opportunities for investors on longer-dated maturities.
Ratios as a percentage of Treasuries
2-Yr 60%
3-Yr 61%
5-Yr 63%
10-Yr 75%
30-Yr 94%
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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