Market Commentary: Week of May 13, 2024

On Monday of last week, rates continued to shrug off concerns about higher yields as they settled into a trading range below the highs rejected during the prior week. A much quieter data calendar provided limited catalysts from which the market could react with either an inflationary or disinflationary narrative. Accordingly, rates settled into a neutral range, with two years hovering near 4.80% - 4.85% and ten years circling at 4.50%. Following the Federal Open Market Committee (FOMC) announcement, Fed officials confidently expressed their views with various comments throughout the week. The common theme revolved around a steady rate picture for the foreseeable future, limiting the market's opportunity to push toward lower levels.

Based on the chart below, it appears that the market has reached a critical inflection point, having successfully tested the previous support level of 4.42% in the 10s (pink line). It appears that the market has shown resilience during the sell-off, with the bottom of the current trend channel (yellow) being tested three times and supported on each occasion. The market's tone has changed lately, with Chairman Powell removing FOMC rate hikes from the table. However, if there is no significant decrease, we may expect rates to remain in the current sideways pattern until there is enough motivation to move them in either direction. A bounce above 4.55% would indicate resistance to lower yields, while a push below 4.42% could trigger a rally towards significantly lower rates.

Client activity at SWBC was active with high buying mid-week, tapering off on Friday. Buyers continue to support duration extension trades in municipals, with 4% coupons trading firmly as the market caught a bid early in the week. Investors have been presented with an opportunity to purchase high-yielding assets based on the consensus opinion in the market. Any higher rate push is expected to be met with even heavier buying. The new issue activity was solid, with strong subscriptions, including the $155mm Weslaco TX ISD loan.

The municipal calendar will bring around $10.8 billion to market this week, remaining robustly above the YTD 2024 weekly average of $7.6 billion. Supply and demand have thus far remained in balance through much of 2024. As we progress towards the typically intense summer demand period, the building calendar should be expected to continue to be well absorbed.

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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