Equities retraced the entirety of the sell-off experienced since year-end, as evidenced by the S&P 500 producing a +1.2% year-to-date return as of Friday’s close and higher by +6.1% since Presiden...
Equities retraced the entirety of the sell-off experienced since year-end, as evidenced by the S&P 500 producing a +1.2% year-to-date return as of Friday’s close and higher by +6.1% since President Trump’s Liberation Day announcement. Notably, the 10-Year US Treasury note came within a few basis points of the 4.57% December 31st closing level last week before rebounding slightly to close near 4.43%. Market volatility will likely remain high as uncertainty and questions about the end-state of the tariff situation remain to be seen.
Big data releases this past week, especially CPI and PPI, failed to deliver follow-through inflationary fears that have dominated the market’s collective conscience of late. Recognizing that it will likely take some time for tariff-related impacts to flow through to the economy and consumer, such fears may have yet to materialize in the data. Even Chair Powell expressed concerns 2 weeks ago about the elevated inflationary concerns going forward. Therefore, we may have to be patient to see to what degree the trade war impacts consumer prices. I continue to expect inflation to be stickier and interest rates to remain at elevated levels until the Fed is incentivized to intercede with stimulative policy, which is unlikely to happen until much later in the year (if at all). The balancing act between the dual mandates of price stability and maximum employment will have to be determined as new data arises. If inflationary pressures resume and the jobs market cools, the Fed will be challenged to determine whether cutting rates to stimulate growth is needed or maintaining or possibly hiking rates to stave off inflation trumps the jobs market. Clearly, this would not be an enviable position for the central bank to have to navigate
From the municipal desk (with contributions from Ryan Riffe)
Despite underperforming relative to U.S. Treasuries, sentiment remains optimistic in the municipal market. We have now experienced three consecutive weeks of municipal bond fund inflows. Furthermore, proceeds from coupons and maturing paper continue to seek a reinvestment home at the relatively attractive absolute levels available within the market. A significant driver of demand, particularly in the 1-year to 10-year maturity space, appears to be coming from the SMA space. The market demonstrated its current strength by absorbing a substantial new issuance calendar of $11.5 billion. A majority of negotiated deals experienced significant oversubscription across the entire yield curve, indicating strong investor appetite. Competitive deals also witnessed tight bidding, especially for bonds issued by states with high deficits and high tax burdens (NY, CT, MA, & NJ). Even with the 10-year municipal-to-Treasury ratio richening to 73% (a decrease from 77% the previous week), accounts have continued to purchase municipal bonds as absolute yields remain attractive.
Ratios:
3-YR Ratio @ 72%
5-YR Ratio @ 72%
10-YR Ratio @ 74%
30-YR Ratio @ 90%
30 Day Visible Supply @ $18.88 Billion (Down From $22+ Billion last Friday)
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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