It remains increasingly difficult to prepare for the next unpredictable occurrence that may come out of the White House. But the “Mean Girls” social media feud between Trump and Musk following Elon’s step down from DOGE adds to the drama. The ongoing trade war spectacle, particularly with China, escalated then de-escalated over the course of the week but ultimately took a backseat to data. Friday’s employment report was solid enough to stave off concerns about the job market showing meaningful deterioration, resulting in a bond market sell-off and equity rally. Notably, 10-Yr rates peaked above 4.50% before the close, and 30-Yr levels approached the important 4.96% level. With supply next week in the form of Treasury auctions, we can expect more upward pressure on rates to continue going forward. Ultimately, I expect rates to revisit and test the 4.80% peak reached in early January, most likely before the end of the summer. Equities peaked above 6000 on Friday, putting equities within nearly 100 points of their all-time high from February. Clearly, equity bulls are taking positive news from the “OK” employment report and economic outlook, as bond bears focus upon inflation concerns.
The economy continues to be resilient in the face of ongoing concerns about impacts from the trade war and inflation picture. The solid jobs report provided ballast to the economic outlook, suggesting that there has not been a sudden decline in the demand for labor. But it is fair to infer that hiring trends are gradually slowing. Now, attention shifts to the inflation picture with CPI to be released next week. The Fed entered its blackout period on Saturday, extending through the meeting during the following week, so we will not be hearing any new perspectives out of the central bank. As recent as late last week, however, Fed Governor Kugler continued to reference concerns about future inflation expectations remaining a primary concern going forward with the statement, “the vast majority are first and foremost worried about inflation right now, before they’re worried about a potential slowdown.”
From the Municipal Desk (with contributions from Ryan Riffe):
This was a highly anticipated week with the market pricing in roughly $19 billion of new issue supply. This was the largest week of new issuance we've experienced all year, with next week expecting to be even higher. Overall, the market absorbed the supply, as most deals were placed with minimal balances or none. According to syndicate members, there were several occasions where it took the full order period for maturities to become subscribed/oversubscribed, perhaps indicating exhaustion at the periphery of some deals. We suggest this occurred because too many deals were priced at the same time, rather than a lack of demand. SWBC was co-manager on the $101mm Georgetown, TX Utility (AA-) deal on Thursday. This was not only oversubscribed 3-8x but had to be repriced to lower yield and spread targets across the curve.
We have now experienced six consecutive weeks of meaningful municipal fund inflows exceeding $400+ million per week. These inflows, combined with June's heavy reinvestment capital, provided the market with stability and a strong base of buyers. In secondary trading, 1 to 12-year maturities received the strongest demand; much of it coming from the SMA space, where June reinvestment capital has been actively seeking a home. The 30-day visible supply calendar drops from $29 billion to $19.6 billion, suggesting demand may outpace supply as we move deeper into the summer. The municipal market outperformed the US Treasuries on Friday as interest rates shot higher, pushing ratios down to their current levels:
Treasury Ratios:
3-YR Ratio @ 68%
5-YR Ratio @ 68%
10-YR Ratio @ 74%
30-YR Ratio @ 92%
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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