Last Week Last week was a bit of a schizophrenic one for rates and equities as narratives crisscrossed one another. The beginning of the week was dominated by talk of recession and corporate margin co...
It was another wild rollercoaster ride for the financial markets in the holiday-shortened week as equities, corporate debt, and risk-free rates reminded me of Evelyn Cross (Faye Dunaway) in the 1974 classic, Chinatown, “Hard landing, soft landing, worst is over, still more to come, long rates capped, still have a long way to run, etc.”
The only apparent truth is that we are in uncharted territory for the modern economy. Last week, especially after the stronger than expected Non-Farm Payroll report, the idea that the economy may self-correct (nasty recession) and help the Fed on the inflation front became suspect. Investors put an additional Fed tightening back into the front end of the curve as the two-year shot higher (after plunging lower the previous week) and the 10-year breached 2.90%.
Equities seemed to be just along for the ride, moving in tandem with rates resulting in the nowhere to hide scenario. There seems to be a decent bid in corporate investment-grade and high-yield bonds and loans. However, discussion with market participants reveals the bid is fleeting, more likely a bit of a dead-cat bounce. In commodities, crude continued to rise despite OPEC’s announced increase in production. There just does not seem to be enough of the stuff as gasoline continues its moon-shot. Since the end of April, gasoline futures are up 22%. Good times.
- The S&P 500 fell 1.17 % for the week. The average daily move was 1.21%.
- The NASDAQ declined .98% for the week. The average daily move for the week was 1.57%.
- The 2-year Treasury yield, rose 18 basis points closing at 2.66%. High year-over-year 2.78%, low yield .10%.
- The 10-year Treasury yield increased 20 basis points for the week, closing at 2.94% year-over-year high yield 3.13%, low yield .91%.
- The VIX Index fell 3.6% for the week, closing at 24.79 Friday. Year-over-year high 36.45 and low 15.07.
- The MOVE Index decreased .8% for the week, closing at 97.73 on Friday. Year-over-year high 140.03 and low 42.53.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 2 basis points for the week closing at 82 basis points Friday. High spread year-over-year high 91 and low of 46.56.
- High Yield corporate debt (as measured by Markit CDX) widened by 16 basis points, closing at 473 basis points on Friday. Year-over-year high 523, and low 269.
- U.S. Dollar Index rose 0.4% for the week closing at 102.14 on Friday. Year-over-year high 104.85 and low 89.44.
- WTI Crude increased 3.3% for the week using the July WTI Futures contract, closing at 118.87 Friday. Year-over-year 123.70, and low 47.62.
- Gold, as measured by the August 2022 futures contract, declined 0.4% for the week closing at 1,850 on Friday. High price for the front contract year-over-year 2,043 and low 1,678.
- Bitcoin increased 3.2%, closing at 29,640 Friday. High price year-over-year 67,734 and low 28,402.
The Week Ahead
We come in this morning with Treasury yields higher and equities stronger. The market is more focused on Treasury and Bond yields moving higher. In the U.S., it looks like rates are going to challenge 3% in 10s, perhaps sometime today. The high in 10s this year was 3.24% (intra-day, closing high was 3.13%).
Interest rate volatility, as measured by the MOVE Index, has been coming off sharply over the last couple of weeks with the narrative being that the high odds of a hard-landing and Federal Reserve resolve will cap inflation and hence, long-term rates. I am fading that view.
This week we get May CPI on Friday. Market consensus for year-over-year is 8.2%, a slight decline from April’s number. Stay tuned!
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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