Market Commentary: Week of June 10, 2024

Interest rates rode a roller-coaster-like path last week as falling yields during the first half of the week were countered by a sharp sell-off following the much stronger than expected NFP report on Friday. Weaker data released Monday through Wednesday (ISM Manufacturing, ISM Prices Paid, and JOLTS) led investors to bid up Treasuries as investors prematurely pulled forward a potential rate cut by the Fed prior to Friday's Payroll data release. Notably, a few economists who predicted a July cut quickly pushed their expectations out to September shortly after Friday’s 8:30 AM data release.

From a technical standpoint, Treasuries are back in a trading range with 10-year notes at 4.42%, having supported the 4.30% low in April (pink line). This price action again puts rates closer to the magnetic-like pull around the 4.50% level, above the 200-day moving average (4.35%, yellow line), and barely within the prior trading channel. The question for participants now is whether the channel has been reset lower (red lines) given last week’s price action or does Friday’s pullback represent more than a dead-cat bounce in rates? With lower highs from the late April peak (blue line), yields near the 4.60% level should be closely watched and may present a buying opportunity should they be revisited.

The Fed meeting next Wednesday should provide more insight regarding their policy stance. Recent talking points have painted a relatively dovish picture despite the ongoing “higher-for-longer” rhetoric Chair Powell has consistently posited. The Fed has been very cautious and consistently cited concerns about cutting “too soon,” which they fear could be more damaging to the economy in the long run. Furthermore, earlier in the day, CPI will be closely watched for clues to hint at stability regarding the path for inflation, which has demonstrated a relatively slow disinflationary path for much of 2024.

Despite the enormous supply last week, municipal yields rallied in line with Treasuries through the beginning of the week. Deals were well subscribed, and secondary activity was robust as dealers looked to add balance sheets as falling rates created a bit of a grab for paper during the early part of the week. This week brings a much lighter new issue calendar with only $5.7 billion slated for pricing. I continue to believe that municipal investors should be thoughtful about buying dips in prices. Furthermore, until supply materially decreases (not expected until closer to the election), investors will have opportunities to lock in higher rates and should take advantage of them when presented. Ultimately, at some point, rates are expected to head lower, but the timing of the sustained move continues to be in question.

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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