Market Commentary: Week of March 25, 2024

After starting the week near the upper end of the recent yield range (near 4.35% 10-Year UST), rates traded lower throughout the week. Chair Powell’s testimony arguably kept market participants in more of a holding pattern until after his press conference. He reiterated the Federal Open Market Committee (FOMC) plan for 75 bps of rate cuts this year. The Dot Plot had only a minor adjustment, which left the median level for the committee unchanged at 4.625%. The slight change to the Dot Plot was not dovish enough to significantly shift market sentiment other than initiating a modest downward rate movement for the remainder of the week.

Overall, municipal volume was relatively muted before the FOMC decision and Powell’s speech. Despite that, SWBC client activity was around average for a Tuesday and arguably, the primary reason was our clients' steady need/desire to continue putting cash to work, especially in 3-10 years. If clients could purchase paper that “hit a yield bogey,” ticket flow would have remained steady. However, activity on Thursday and Friday was far from a “grab-fest”, and dealer engagement was quieter for the week's balance, taking cues from buy-side accounts and less enthusiastic purchasing decisions before and after Powell’s comments.

We have an above-average supply week ($8.7 billion – heavily concentrated in a few large deals), a holiday-shortened trading session, and lighter redemptions shortly. Combined with the typical market doldrums as we head into April tax time, these factors should create a modest spread widening in municipals. We noticed a few trades that could be the beginning of this trend, but we will keep an eye out for additional data points.

Finally, a special thank you to the Securities Industry and Financial Markets Association (SIFMA) for coordinating the close of the Good Friday market with the significant PCE release at the end of the week – sarcasm intended. Everyone seems to be scratching their heads about the market being closed despite the release of the Fed’s primary data point representing how they observe economic activity.

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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