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 was a very busy week indeed. Front and center we had the Fed, the ECB, and the BOJ’s monetary policy meetings. The Fed’s FOMC meeting was pretty much as expected. The Fed raised the policy rate to 5.50%, gave nod to some positive news on the inflation front, signaled they are near the end of their tightening run but stated that the labor market is still very strong, and the last 3 FOMC meetings are essentially live ones. The risk markets are pricing in a 2024 soft-landing for the economy and the Fed Funds futures and OIS markets are pricing in 3 rate cuts in 2024, starting in the second quarter. Essentially, the markets are pricing in the Fed’s ability to engineer the softest of landings in recent economic history. The real central bank fireworks came Thursday night when the last easy-money holdout, Japan, announced it was finally starting to unwind its massive quantitative easing program, Yield Curve Control (YCC). Since 2016 the BOJ put a 25-basis point cap on Japanese Government Bond 10-year debt. Late last year they increased the cap to 50 basis point (sparking a selloff that shot 10-year yields immediately up to 50 basis points from 25). On the news, JGB yields jumped, taking other longer dated sovereign bond yields up with them as the US 10-year Treasury note breached 4%. The BOJ owns roughly 45% of the JGB market while 95% of the outstanding market is owned domestically. The fear is as the non-BOJ holders take serious duration hits and we end up with a situation similar to last year’s UK Gilt crisis where a bubble pops and spills over to global yields. Stay tuned.
- The S&P 500 rose 1.01% for the week. The average daily move was 0.47%.
- The NASDQ advanced 2.02% for the week. The average daily move for the week was 0.67%.
- The 2-year Treasury yield increased 4 basis points, closing at 4.88% on Friday. High year-over-year 5.07%, low yield 2.87%.
- The 10-year Treasury yield rose 12 for the week, closing at 3.85% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
- The VIX Index fell 1.95% for the week, closing at 13.33 on Friday. Year-over-year high 34.45 and low 12.91.
- The MOVE Index increased 2.9% for the week, closing at 109.76 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 2 basis points, closing at 63 basis points on Friday, a new year-over-year low. High spread Year-over-year high 111 and low of 64.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 12 basis points, closing at 408 basis points on Friday, matching its year-over-year low. Year-over-year high 627, and low 408.
- US Dollar Index increased 0.54% closing at 101.07 on Friday. Year-over-year high 114.11 and low 99.77.
- WTI Crude increased 4.36% for the week, using the September WTI Futures contract, closing at 80.58 on Friday. Year-over-year high 104.22, and low 66.74.
- Gold, as measured by the December futures contract, declined 0.27% for the week, closing at 1,999 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
- Bitcoin dropped 1.81% for the week closing at 29,342 on Friday. High price year-over-year 31,386 and low 15,632.
The Week Ahead
We come in this morning with equities flat and Treasury yields down small. Quarterly earnings roll on while we have a big week of economic data, most notably the June JOLT index on Tuesday and July Non-Farm Payroll report on Friday.
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.Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses, and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees, and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.
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