Market Commentary: Week of February 12, 2024

The calm between the storms?

With a shortage of data and other significant market-influencing events last week compared to the week prior, the market settled into a relatively quiet trading pattern. Except for last Monday (February 5^th), interest rates were in “normal-ish” trading ranges intra-day. Rates along the curve ended the week near the upper end of the recent range; in some cases, meaningfully testing support levels. Notably, 2-year UST pushed up close to 4.50%, 10-year UST tested 4.19%, and 30-year UST is approaching the 4.42% January high. Technical factors indicate that yields breaking above these support levels could lead to higher rates in the near term. Such an opportunity would give investors a buying opportunity to lock in even more attractive levels in the market.

Source: Bloomberg

SWBC client activity was tactical in its approach throughout much of last week. The front end of the curve and the 13-20-year maturity range saw the most engagement. Given the current shape of the municipal yield curve, it is no surprise that the 4-12-year maturity range lacks attraction for buyers. Though last week’s new issue supply was a respectable (if not large) $7.7bln, the year-to-date volume has been constrained. This fact, coupled with stingier bid-wanted list activity, pressured the bid side of the market to remain tight. The client focuses on new issues that created strong over-subscriptions with arguably better yields than were available in the secondary market. If accounts could purchase paper at a yield-bogey upon which they were focused, trades were getting done. Furthermore, dealers generally seemed less willing to cut offers and execute at price concessions, given the difficulties in replacing inventory.

Looking ahead, I reiterate that higher yields should give investors a good buying opportunity in the long run. With the continued expectation from the market that the Fed is moving closer to cutting interest rates at some point in 2024, any pop-in rates should not be easily dismissed by seekers of value. Many SWBC clients indicate that cash on the sidelines is ample; they are just looking for a home in the markets at the right opportunity. Don’t wait too long or dismiss a “bird in the hand.”

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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