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    Capital Markets | 4 min read

    Market Commentary: Week of May 20, 2024

    Last week’s data was relatively mixed, but the market’s interpretation leaned decidedly bullish. As a result, rates were pushed through support, and the next meaningful lower level was tested (4.70% in 2-year, 4.30% in 10-year, and 4.50% in 30-year). Fed policymakers have continued their “higher for longer” proclamations but are undoubtedly relieved by the market's expectation that inflation will move closer to their 2% target. The bounce on Thursday and Friday puts rates back into a range supported by the 200-day moving average. So, some consolidation may be expected this week, with less new information scheduled to be disseminated.  

     wmc 5.20

    Ratios in the municipal market ticked higher following multiple weeks of above-average supply. Though not earth-shatteringly attractive, further out the curve, ratios touched levels not seen since late January -- 10 years at 61%. We’ve experienced some strange dynamics recently in municipalities. Specifically, 4% coupons enjoyed an outsized rally, with spreads tightening as compared to bonds with a 5% coupon. As a result, clients have backed off purchases of longer-dated 4’s at a discount. Though the market has cooled in this regard, some thoughtful accounts have begun to entertain selling into the strength given the limited upside potential and arguably greater risk of credit widening down the road. 

     

    Aside from a reluctance to pursue 4% coupons, clients have continued to focus on optimizing purchases with a barbell structure. The front end of the curve and cash positions continue to offer attractive rates. The shape of the yield curve provides little incentive for engaging buyers in the 4 to 12-year range. One Portfolio Manager, who shall remain nameless, rather succinctly summarized his stance, “I hate the belly with rates lower than the front-end so that I won’t buy there.” With a decade-long relative value opportunity to lock in higher yields further out the curve, any backup in rates coupled with the Fed’s stated position should be viewed as a buying opportunity.

     

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    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.

    Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses, and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees, and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.

    © 2021 SWBC. All rights reserved. Securities offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisor.

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    Christopher Brigati

    Prior to joining SWBC, Brigati was Senior Vice President, Managing Director of Municipal Investments at Valley National Bank. With over 25 years of experience primarily in the municipal market, he is a recognized thought leader in the fixed-income markets and is a regular contributor with appearances on Bloomberg Television and Radio. He has authored numerous economic commentaries and his insights have been featured in leading financial media publications, including The Bond Buyer, The Wall Street Journal, and Bloomberg. Brigati has also been an active participant with the Bond Dealers of America (BDA) trade association, advocating regulators and legislators on Capitol Hill on behalf of the broker-dealer community. Before joining Valley National Bank, he served as Managing Director and Head of Municipal Trading at Advisors Asset Management, Inc. (AAM). Before that, he had a long career at Morgan Stanley where he served as Managing Director and Head of Wealth Management Municipal Trading for eight years. Brigati holds a bachelor’s degree from The State University of New York at Albany School of Business. He is registered for Series 3, 4, 7, 24, 53, and 63.

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