Last week was chaotic, beginning with Trump’s weekend tariff announcement that threw market participants a curveball. Initial concerns about inflationary impacts gave way to economic slowdown implicat...
Last week was chaotic, beginning with Trump’s weekend tariff announcement that threw market participants a curveball. Initial concerns about inflationary impacts gave way to economic slowdown implications as market volatility ramped up. Despite global trade war angst being put on the back burner once the tariff delay was announced, there were plenty of fundamental factors upon which to focus for the rest of the week, including JOLTS, ISM Manufacturing, and employment data. Additionally, news from the Treasury that the auction sizes will remain unchanged took supply concerns off the table for longer-dated Treasuries.
The yield curve flattened significantly, and 10-Year rates pushed sharply below key support near the 4.50% level before settling at 4.49% to close the week. The Fed’s path should remain on hold for the foreseeable future as inflation concerns remain while the mixed employment data and uptick in wage growth suggest that the employment picture is stable. As noted in the above chart, rates broke support, extended below the upward-sloping channel, and closed for the week below the range. From a purely technical perspective this price action could serve as the first indication that the yield high of 4.81% for the year has been established. The fundamental picture clouds this assessment, however, as stickier inflation concerns continue to loom over the market. Until fears about inflation manifest into something more concrete, the 4.50% level now becomes resistance and lower yields. I reiterate, with slightly less conviction, my expectation that tail risk could pressure rates to move higher and still test the 5% threshold down the road.
From the desk of Ryan Riffe:
Picking up where things left off on Friday, municipals demonstrated another strong week of trading. Lighter supply was met with a solid focus for both the primary and secondary markets. Competitive deals were well bid, and many negotiated deals were repriced lower, given the heavy demand. Although ratios remain expensive, February money was well deployed as secondary volume picked up from last week. Munis outperformed Treasuries on Friday, pushing 10-Yr Ratios to 64% on an intra-day basis. 30-day Visible supply ticked upwards to $11.5 billion, up from the $8 billion figure in prior weeks. Additionally, the new issue calendar jumped to $9.47 billion from last week’s modest $6.9 billion figure. Given the many factors at hand (Expensive UST/Muni Ratios, increased supply, sticky inflation data, Trump policy initiatives, and Fed policy), we plan to trade with caution as we head into the lower reinvestment months of the year, March, April & May.
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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