Market Commentary: Week of March 11, 2024

The market spent much of last week in a relatively stable but steadily decreasing interest rate pattern. The 10-year UST closed just below the previous support level of 4.19%, indicating a trend towards lower rates absent meaningful data. Chair Powell’s testimony before Congress supported this sentiment as his comments helped cool off the recent inflation concerns. Notably, he indicated that the Fed was closer to gaining confidence in its directive and reiterated the sentiment that rate cuts were likely this year. The release of the always-important jobs data on Friday suggested a solid, but slightly cooling labor market, which is helpful for the Fed to orchestrate a softer landing. However, most steam was removed from the market, leaving rates unchanged.

In municipals, buyers absorbed the slightly below average $5.7 billion new issue supply, with more significant marquis credits receiving heavy interest from buyers. The steady inflows into municipal funds supported the stable demand with nine consecutive weeks of positive flows. Contrarily, redemption monies are expected to be lighter, dropping from $36 billion in February to a modest $25 billion in March. Generally, dealer inventories rose modestly because of the slight downtick in demand. Furthermore, as Treasury rates trended lower, municipals naturally followed with rates declining by 5-7 basis points along the curve. Accordingly, ratios remained about the same but barely higher, to 60% in 10 years and 62% in 2 years. So, the relative value was modestly better, but left much room for improvement, which historically occurs as we head closer to April 15^th tax time.

This week, $8.6 billion in new municipal deals are scheduled to be priced. It will be interesting to see if the market blinks (I’m not betting on it yet) and starts meaningfully cheapening, considering this supply, or if buyers continue seeking opportunities to put cash to work. I anticipate a slight price decrease as we move through March into April, but nothing that will significantly disturb the market. Rest assured that the market is stable, and any fluctuations are expected to be minor. SWBC experienced fluctuations in customer buying activity on Wednesday and Thursday afternoons last week as the market reacted to Chair Powell’s testimony. The commentary from last week indicated that customers are seeking more extended call structures with lower coupons. The desk was busy bidding on loans the previous week and appreciated client orders and feedback.

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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