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    As is typical following bouts of significant volatility in the markets, this past week was much calmer as rates showed signs of consolidation. The fact that 10-Yr rates failed to regain the 4.50% yield high achieved in the week prior is not lost upon me. I am not suggesting that the market flipped to bullish. However, it is simply less bearish than it was before. That being said, price action certainly has my attention with a mindful eye on activity that could suggest testing support around the 4.25% area. With Putin’s recent escalation in Ukraine, geopolitical risks have certainly become a more noteworthy consideration that could create a temporary flight to quality trade. The upward trend remains intact, however, with technical and fundamentals continuing to suggest that a test of the 4.73% (purple) April high remains a reasonable probability. That being said, Fed Funds Futures Forecasts (try saying that 3 times fast) have reduced the probability of a 25-basis point cut on December 18th from 83% before the election to 53%.

    Nov25

    As indicated in the above chart, 10-Yr rates have moved in a sideways pattern throughout the recent trading sessions — possibly suggesting a breakout of the uptrend. The lack of a meaningful rejection of higher levels and failure to test lower yields, however, suggests a mere widening of the channel as a distinct possibility. As stated previously, other technical factors, along with underlying fundamental components continue to suggest that a retest of higher yields is probable. The June close of 4.467% (green) has been tested several times, but failure to close above there suggests the strength of this particular price point. If/when the market meaningfully breaks above this level, especially on a daily close basis, the 4.73% target comes into play.

    Last week, SWBC client activity was on par with the quieter trading session. Activity was modest, but investors still needed to put cash to work. Mutual fund flows continue to be positive with $360 million of inflows last week. This represents 15 consecutive weeks with positive flows, including the notably less active period immediately surrounding the Presidential election. The higher absolute yield environment does not appear to dissuade investors from taking advantage of the current opportunities to lock in longer-term investments. The Fed’s narrative continues to point away from a restrictive monetary policy, meaning that, at some point, the curve will steepen, short-term rates will fall, and investors will have missed the opportunity.

    With the Thanksgiving holiday imminent, expectations for the future continue to call for another week with limited action. This means data will be in short supply, trading desks will be half-staffed, and a “breather” is most likely in order. So, after you dive into your Thanksgiving spread, sit back, loosen your belt, and take a break. There is plenty of excitement ahead.

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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.

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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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