Volatility was on full display this week as rates tested new cycle highs after the Trump election victory. On Thursday, the FOMC rate decision was announced calling for a 25-basis point cut followed b...
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Last Week
Last week seemed to be marked with the realization that interest rates were going to stay higher for longer, especially in the long end of the Treasury yield curve. In a nod to the fact that supply is going to be a problem going forward, real 30-year yields (TIPs) ended the week near 2%, the highest level in 14 years. As real yields are adjusted for inflation, the real yield represents the true premium investors need to receive to hold longer-end Treasuries. Last week Treasury auctioned off $103 billion 3-year, 10-year and 30-year notes/bonds. I kind of got it backwards with my performance call last week. I thought the auctions would be a bit shaky on “the day of” but would recover by weeks end. Instead, the 3-year and 10-year auctions were strong (30-year tailed a bit) but by Friday’s close all three were underwater. On Thursday we received a relatively benign July CPI report. Inflation continues to cool somewhat but still remains stubbornly high, especially given the hyper-aggressive monetary policy over the last 18 months. Stocks were mixed with the more interest rate sensitive NASDQ underperforming the S&P.
- The S&P 500 declined 0.31% for the week. The average daily move was 0.43%.
- The NASDQ fell 1.9% for the week. The average daily move for the week was 0.67%.
- The 2-year Treasury yield rose 13 basis points, closing at 4.90% on Friday. High year-over-year 5.07%, low yield 3.19%.
- The 10-year Treasury yield rose 12 for the week, closing at 4.16% on Friday. Year-over-year high yield 4.24%, low yield 2.79%.
- The VIX Index dropped 13% for the week, closing at 14.84 on Friday. Year-over-year high 34.45 and low 12.91.
- The MOVE Index declined 3.26% for the week, closing at 112.1 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened2 basis points, closing at 66 basis points on Friday. High spread Year-over-year high 111 and low of 64.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 6 basis points, closing at 430 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index rose 0.81% closing at 102.84 on Friday. Year-over-year high 114.11 and low 99.77.
- WTI Crude increased 0.44% for the week, using the September WTI Futures contract, closing at 83.19 on Friday. Year-over-year high 104.22, and low 66.74.
- Gold, as measured by the December futures contract, declined 1.47% for the week, closing at 1,947 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
- Bitcoin advanced 1.59% for the week closing at 29,387 on Friday. High price year-over-year 31,386 and low 15,632.
The Week Ahead
We come in this morning with equities up small while Treasury yields continuing to head higher. Fed-Speak will be generally light this week with only Kashkari speaking tomorrow. On Wednesday we get the release of the July FOMC minutes. For economic data, we receive July Retail Sales on Tuesday and Housing Starts Wednesday.
Definitions:
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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