Last Week It was an ugly week for just about every financial asset as Treasury rates soared, spread product (particularly munis) was clobbered, while stocks took a dive. We had a quadruple dose of cen...
Capital Markets
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5 min read
Last Week
It was another action-packed, stress-inducing week. Debt ceiling drama moved front and center as the White House and House leaders traded barbs while digging in deep. Both sides are playing a dangerous game of chicken as it appears the Federal government may begin running out of money to pay its bills as soon as the second week in June.
Rates paid on Treasury Bills soared over the week, but it seemed the rest of the rates and equity markets paid little attention. Meanwhile, the week was rich with Fed speak capped with Chairman Powell’s speech on Friday. It is clear that we have a real debate brewing at the Fed as policy makers grapple with pausing in June and letting some data flow by while other voices warn against complacency, arguing a pause in June could endanger the war on inflation.
Powell stated Friday, "The risks of doing too much or doing too little are becoming more balanced and our policy adjusted to reflect that." Powell continued to say, “Ahead of June 13-14 we haven't made any decisions about the extent to which additional policy firming will be appropriate." The one thing none of the Fed speakers mentioned was reversing course and easing in 2023. It seemed that perhaps the market got the message (finally?) as the front end sold off hard.
- The S&P 500 advanced 1.65% for the week. The average daily move was 0.64%.
- The NASDQ rose 3.04% for the week. The average daily move for the week was 0.77%.
- The 2-year Treasury yield surged 28 basis points, closing at 4.27% on Friday. High year over year 5.07%, low yield 2.48%.
- The 10-year Treasury yield rose 21 basis points for the week, closing at 3.68% on Friday. Year over year high yield 4.24%, low yield 2.58%.
- The VIX Index declined 1.29% for the week, closing at 16.81 on Friday. Year over year high 34.45 and low 15.78.
- The MOVE Index increased 5.8% for the week, closing at 127.51 on Friday. Year over year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 2 basis points for the week closing at 79 basis points on Friday. High spread Year over year high 111 and low of 67.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 4 basis points, closing at 493 basis points on Friday. Year over year high 627, and low 408.
- US Dollar Index rose 0.5% to 103.2 on Friday. Year over year high 114.11 and low 101.01.
- WTI Crude rallied 2.39 % for the week, using the July WTI Futures contract, closing at 71.69 on Friday. Year over year high 122.11, and low 66.74.
- Gold, as measured by the August futures contract, declined 1.91% for the week closing at 2,000 on Friday. High price for the front contract year over year 2,056 and low 1,623.
- Bitcoin rose 1.48% for the week closing at 26,840 on Friday. High price year over year 46,312 and low 15,632.
The Week Ahead
We come in this Monday with Treasury rates up sharply led by the 2-year as St. Louis Fed President Bullard is on the tape calling for two more rate hikes in 2023. Equities have not responded in kind. We went through the weekend without a whiff of an agreement on the debt ceiling. T-Bills are responding as the June bill is up another 14 basis points this morning. Stocks seem blissfully ignorant.
The week progresses as it looks like we are heading into Memorial Day without at least the possibility of debt ceiling deal, meaning it could get really ugly. It is a packed data week with the most important data being April PCE on Friday. Have a good week and a greater Memorial Day weekend!
Definitions:
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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