Market Commentary: Week of February 26, 2024

This past week, the markets remained relatively quiet, with fewer economic releases limiting the potential for market-influencing data. The release of the FOMC minutes punctuated the integrity of the Fed’s position regarding a cautious approach to rate cuts following the hawkish CPI data from the previous week. Treasuries spent significant time testing the upper end of the weekly range in 10-year notes. Though not outright hawkish, comments from Fed officials suggesting delays for any rate cuts have been sufficient in combatting the outright bullish position the market had previously assumed.

In municipals, last week's new issue calendar was light, but steady demand for paper kept the market stable. Secondary activity was quite robust as bid-offer spreads tightened, which made it increasingly more challenging to position new paper in inventory for distribution to the SWBC client base. As is typical, the supply/demand dynamic strongly influenced the underlying tone of the market. In this case, the municipal market remained well-supported despite the recent increase in Treasury yields.

The chart below demonstrates the recent movement in ratios for BVAL AAA Municipal Yields as a percentage of treasuries for 10-year bonds, again dropping below the 60% level. The average throughout the post-covid period starting January 2021 is 72%. Thus, it is no surprise that several SWBC clients have expressed reluctance to add to portfolios due to the relatively unattractive ratios required to purchase paper. I would suggest, however, that despite their general reluctance, accounts are begrudgingly buying, given the scarcity of paper and the desire to keep portfolios reasonably invested. Following recent input from clients, the desk actively engaged in specialty state paper with good follow-through from asset managers.

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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