Last Week The front end of the Treasury yield curve went on another wild ride last week. Relief over a debt ceiling deal triggered a 25-basis point drop in 2-year rates in the middle of the week only ...
Last Week
It was yet another crazy week. We came into the week with the U.K. Gilt crisis front and center.
On Tuesday, BOE Governor, Andrew Bailey, announced that the emergency Gilt buying program was indeed going to end Friday as planned. Risk markets, used to central banks solving all problems, were shocked.
On Wednesday, the embattled Chancellor of the Exchequer Kwasi Kwarteng, in the U.S. for the G7 Finance Meeting, blithely stated that the Gilt crisis (Gilts were getting pulverized again) was the Bank of England’s problem. However, by Thursday night, he was racing to catch the last flight to London only to arrive in time to be fired.
On Friday, Prime Minister Liz Truss (I don’t think we will be calling her that too much longer) scrapped most of her fiscal plan of deep tax cuts and named a more market-friendly Chancellor Jeremy Hunt to oversee the dismantling of her plan. U.K. Gilt problem solved, for now.
Meanwhile, the U.S. delivered another shocking upside surprise to CPI. Core CPI increased 0.6% for September, higher than the market consensus estimate of 0.4%. The rise was another broad increase in mostly everything sans gasoline and fuel oil.
The Thursday release was initially met with stocks cratering and bond yields up sharply. However, stocks hit some key technical levels and set off a furious, short-covering rally, with the S&P 500 doing a very rare 5% roundtrip for the day. However, by Friday’s close, all of Thursday’s gains were wiped out. In rates, 2-year notes soared in yields to their highest level in over 15 years. Good times.
- The S&P 500 dropped 1.57% for the week. The average daily move was 1.34%.
- The NASDAQ plunged 3.11% for the week. The average daily move for the week was 1.51%.
- The 2-year Treasury yield rose 19 basis points, closing at 4.5% on Friday, a new year-over-year high. High year-over-year 4.5%, low yield 0.20%.
- The 10-year Treasury yield rose 14 basis points for the week, closing at 4.02%, a new year-over-year high on Friday. Year-over-year high yield 4.02%, low yield 1.24%.
- The VIX Index rose 2% for the week, closing at 32.02 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index rose 2.9% for the week, closing at 152.89 on Friday. Year-over-year high 158.99 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 3 basis points for the week closing at 104 basis points Friday. High spread Year-over-year high of 111 and low of 49.
- High Yield corporate debt (as measured by Markit CDX) widened 13 basis points, closing at 595 basis points on Friday. Year-over-year high 627, and low 288.
- US Dollar Index rose 0.45% for the week closing at 113.31 on Friday. Year-over-year high 114.11 and low 93.34.
- WTI Crude fell 7.3% using the December WTI Futures contract, closing at 84.65 Friday. Year-over-year high 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, fell 3.5% for the week closing at 1,649 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,633.
- Bitcoin declined 1.9%, closing at 19,177 on Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come in this morning with stocks up and bond yields down sharply. Over the weekend, Chancellor of the Exchequer, Jeremy Hunt, scrapped nearly all the Truss tax cuts and markets are rejoicing with 30-year Gilt yields down over 40 basis points on the day.
Unfortunately, the U.K.’s best outcome is that the Truss era never happened, which just leaves them in the high inflation, high rate, and weak currency situation they were in pre-Truss data.
This week, we really get into the third-quarter earnings season. The big banks start it off, then we have giants like P&G, Netflix, J&J, IBM, and Tesla Monday-Wednesday. It should be yet another volatile week.
Definitions:
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg 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. 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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