Last week’s market activity could aptly be described as uninspired compared to recent weeks, despite the escalating conflict between Israel and Iran the previous weekend. The much anticipated and wide...
Capital Markets
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5 min read
Last week’s market activity could aptly be described as uninspired compared to recent weeks, despite the escalating conflict between Israel and Iran the previous weekend. The much anticipated and widely expected announcement of no change to the Fed Funds Target Rate was announced on Wednesday. Market participants, however, were on pins and needles awaiting the fresh forecast of the Summary of Economic Projections (SEP), commonly referred to as the Dot Plot. Thus, markets were relatively calm ahead of the FOMC decision following the Juneteenth market close on Thursday, creating a potential 4-day holiday weekend for those able to plan for a Friday vacation day.
The SEP results narrowly avoided signaling 1 rate cut by year end instead of 2. Notably a single vote made the difference in retaining the prior forecast instead of shifting to fewer cuts. Furthermore, 7 voters opted for no cuts as compared to 4 voters from March and only 1 in December. Though the median projection was unchanged, sentiment arguably shifted to less dovish on the part of the Fed. Finally, the median 2026 dot rose to 3.6% from 3.4% and 2027 increased to 3.4% from 3.1%.
The equity market barely edged lower in the week, and interest rates were similarly muted. After peaking around 6059 the prior week, the S&P 500 Index backed off to close slightly lower. Treasury rates remained range-bound as evidenced by the 10-Yr US Treasury hovering near the center of its recent range around the 4.40% level. In response to the Middle East conflict, oil rose sharply, ending the week near $75/barrel after peaking near the $77 level. The rise in oil sparked additional inflation concerns in addition to the lingering threat from tariffs that have dominated the market’s conscience of late. Importantly, from a technical perspective, Treasuries bounced off recent support twice in the past 2 weeks at the 4.31% level. This keeps my expectation for higher rates at some point this year firmly in place as the January high near 4.81% remains in play. Additionally, the 5.15% April high in the 30-Yr bond is within striking distance as I expect inflation to remain sticky and the steepening yield curve continues to develop.
Looking ahead, the conflict in the Middle East will be closely monitored for any signs of de-escalation. The impact upon oil, along with the market’s perception of US Treasuries as a safe haven for investor capital during times of increased geopolitical tension, remains a key concern. We await the results on Friday for the Fed’s preferred inflation metric, core-PCE, which is expected to show a minimal monthly gain of 0.1%. As evidenced by the most recent benign employment data, the shift in concerns between the Fed’s dual mandates of price stability and full employment should not be expected anytime in the immediate future. We also have auctions for the 2s, 5s, and 7s from the Treasury to determine the market's appetite for continued demand for US debt, especially from foreign investors. The longer-term narrative surrounding the continued stability of US assets needs to be continuously assessed.
From the Municipal Desk:
As suggested from the prior week’s commentary, the notable decline in supply for municipal new issues was met with solid demand last week. Despite the holiday interruption on Thursday, investors continued unabatedly seeking a home for cash. Most deals were universally well subscribed, with heavy over subscription in many maturities. This week, the new issue supply is slated for slightly below $11 billion resuming the greater than average weekly pace throughout 2025. Recall that in only 2 weeks, we can expect another holiday-shortened week with the July 4th holiday and the imminent fall-off in supply that will likely result. Therefore, this occasional diminished supply coupled with consistent and necessary summer reinvestment demand will keep ratios constrained for the near future.
Ratios as a percentage of Treasuries
US TSY 2yr 3.908% 67%
US TSY 3yr 3.861% 68%
US TSY 5yr 3.961% 69%
US TSY 10yr 4.375% 75%
US TSY 30yr 4.889% 93%
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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