Last Week It was an ugly week for just about every financial asset as Treasury rates soared, spread product (particularly munis) was clobbered, while stocks took a dive. We had a quadruple dose of cen...
Capital Markets
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5 min read
Last Week
The front end of the Treasury yield curve went on another wild ride last week. Relief over a debt ceiling deal triggered a 25-basis point drop in 2-year rates in the middle of the week only to see rates blast back out over 20 basis points as Friday’s May employment report showed no signs of the labor market cracking.
By week’s end, the yield curve, as measured by 2s 10s spread, was negative 81 basis points. With a week to go before the Fed’s FOMC meeting, market bets are now squarely centered on another 25-basis point hike either next week or at the next meeting in late July. Personally, I think there is more credibility risk for the Fed to pause in June and then go in July if the data between the two meetings continues to show little sign of inflation easing. Seems like a high-profile game of Russian Roulette.
Interestingly, stocks seem to be voting for recession avoidance as both the S&P and NASDAQ had another strong showing and the VIX plummeted to a new year-over-year low. I think stocks have it wrong, but there’s an awful lot of money on the sidelines who’s feeling were hurt in 2022 and are looking for 2023 payback.
- The S&P 500 rose by 1.83% for the week. The average daily move was 0.76%.
- The NASDAQ advanced 2.04% for the week. The average daily move for the week was 0.83%.
- The 2-year Treasury yield fell 6 basis points, closing at 4.50% on Friday. High year-over-year 5.07%, low yield 2.72%.
- The 10-year Treasury yield dropped 10 basis points for the week, closing at 3.70% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
- The VIX Index plummeted 18.7% for the week, closing at 14.60 on Friday, a new year-over-year low. Year-over-year high 34.45 and low 14.60.
- The MOVE Index dropped 16.5% for the week, closing at 120.95 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 4 basis points for the week closing at 71 basis points on Friday. High spread Year-over-year high 111 and low of 67.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 25 basis points, closing at 450 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index declined 0.18% to 104.015 on Friday. Year-over-year high 114.11 and low 101.01.
- WTI Crude fell 1.28% for the week, using the July WTI Futures contract, closing at 71.74 on Friday. Year-over-year high 122.11, and low 66.74.
- Gold, as measured by the August futures contract, rose 0.36% for the week closing at 1,969 on Friday. High price for the front contract year-over-year is 2,056 and the low is 1,623.
- Bitcoin rose 1.59% for the week closing at 27,184 on Friday. High price year-over-year 46,312 and low 15,632.
The Week Ahead
We come in this Monday with Treasury rates up sharply with the front end of the curve leading away. The 2-year is up 7 basis points in a follow-on sell-off from Friday’s strong May employment report while the rest of the curve is getting hit in anticipation of a post-debt ceiling crisis surge in corporate debt issuance. Equities are mostly flat. The economic calendar is very light this week and Fed-Speak is non-existent in front of next week’s FOMC meeting.
The big news this morning is Saudi Arabia’s go-it-alone 1-million-barrel production cut. Crude is up sharply. The Saudis saw that oil in the $80s (maybe even low $90s) did not crash the world economy and it seems they would like to get back to an $80 handle sooner rather than later. That might be flawed logic as oil in the 80s to 90s was accompanied by massive fiscal and monetary stimulus. That won’t be there this time around.
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 the 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 & Telecommunications. 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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