Market Commentary: Week of February 21, 2023

Last Week

Fed pivot, CANCELLED! The carnage in the rates market continued, last week, as a stronger-than-expected January CPI report, followed by a stronger-than-expected Retail Sales print, followed by a stronger-than-expected January PPI report smacked any notion of a Fed pause and pivot out of anyone’s head.

On February 1, the one-month Fed Funds rate, implied by OIS swaps for December 2023, was 4.45%. As of the close this past Friday, that rate is now 5.09%. Municipal bonds, especially the front end of the yield curve, were pummeled after an exceptionally strong January. Agency MBS also took a pretty good beating.

Investment grade and high-yield corporates held their ground, however, as the stronger-than-expected economy is offsetting higher baseline treasury yields. Stocks also did better than one would expect considering they have been trading closely with interest rate duration for months now.

The front end of the yield curve feels like it is on the same page as the Fed now. We’ll see if all the bad positions have been wrung out in the coming days.

• The S&P 500 fell 0.26% for the week. The average daily move was 0.62%.
• The NASDAQ dropped 0.59% for the week. The average daily move for the week was 1.07%.
• The 2-year Treasury yield rose 10 basis points, closing at 4.62% on Friday. High year over year 4.72%, low yield 1.34%.
• The 10-year Treasury yield increased 9 basis points for the week, closing at 3.72% on Friday. Year over year high yield 4.24%, low yield 1.73%.
• The VIX Index eased 1.61% for the week, closing at 20.02 Friday. Year over year high of 36.45 and a low of 17.87.
• The MOVE Index advanced 0.44%, closing at 110.11 on Friday. Year over year high of 160.72 and a low 91.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads were unchanged for the week closing at 73 basis points Friday. High spread Year over year high 111 and low of 64.
• High Yield corporate debt (as measured by Markit CDX) spreads increased by 2 basis points, closing at 444 basis points on Friday. Year over year high is 627, and the low is 355.
• U.S. Dollar Index was nearly unchanged for the week closing at 103.86 on Friday. Year over year high 114.11 and low 96.025.
• WTI Crude fell 4.24% using the March 2023 WTI Futures contract, closing at 76.34 Friday. Year over year high of 123.70, and a low of 71.02.
• Gold, as measured by the April futures contract, declined 1.3% for the week closing at 1,850 on Friday. High price for the front contract year over year is 2,043 and the low is 1,623.
• Bitcoin rose 13,.67% for the week closing at 24,487 on Friday. High price year over year 47,967 and low 15,632.

The Week Ahead

We come in this morning with stocks off a fair amount while fresh carnage is added to rates with the 2-year note up another five basis points and the 10-year up six basis points. Treasury strategists have stated that 3.90% on the 10-year is a key yield level and right now we are at 3.88%. Perhaps bad positions still have a way to go to be fully exorcised.

We have a heavy data week highlighted by the December FOMC minutes tomorrow and January PCE on Friday. We also have a very heavy schedule with regard to Fed-speak.

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 the 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, Technology, Media & Telecommunications. 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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