Market Commentary: Week of October 2, 2023

Last Week

The “post extraordinary monetary policy price discovery” for Treasury notes continued last week as the long end of the yield curve sold off hard. It doesn’t seem that long ago that many rate strategists were calling 2023 “The Year of the Bond."Now bonds have become a nightmare as the selloff is becoming increasingly disorderly. The yield curve, 2s-10s, steepened 20 basis points while performance for most fixed income products has turned decidedly negative for the year. Real yields on Treasuries continue to climb sharply, well through their historical averages. The great selloff in bonds is world-wide now as rates in the U.K. and the Eurozone spiked higher as well. In Japan, rates would also be spiking higher if not for the Bank of Japan furiously buying JGBs to enforce Yield Curve Control. The question is how long the BOJ can keep this up as their currency continues to weaken and the price of commodities their economy needs are increasing in both USD terms and absolute terms. When the great Yield Curve Control experiment fails, look out below. It won’t be long now.

• The S&P 500 declined 0.74% for the week. The average daily move was 0.55%.
• The NASDQ was nearly unchanged for the week. The average daily move for the week was .64%. 
• The 2-year Treasury yield fell 7 basis points, closing at 5.04% on Friday. High year over year 5.18%, low yield 3.77%
• The 10-year Treasury yield increased 13 basis points for the week, closing at 4.57% on Friday. On Wednesday the note hit a new year-over-year high of 4.60%. Year over year high yield 4.60%, low yield 3.31%
• The VIX Index rose 1.86% for the week, closing at 17.52 on Friday. Year over year high 34.45 and low 12.82
• The MOVE Index increased 12.3% for the week, closing at 113.55 on Friday. Year over year high 198.71 and low 96.61
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 1 basis point, closing at 74 basis points on Friday. High spread Year over year high 111 and low of 62.29
• 5-year High Yield corporate debt (as measured by Markit CDX) spreads increased 36 basis points, closing at 481 basis points on Friday. Year over year high 627, and low 408
• US Dollar Index advanced .56% closing at 106.17 on Friday. Year over year high 114.11 and low 99.77
• WTI Crude rose 0.84% for the week, using the November WTI Futures contract, closing at 90.79 on Friday. On Wednesday the front future set a new year over year high of 93.68. Year over year high 93.68, and low 66.74   
• Gold, as measured by the December futures contract, fell sharply by 4.06% for the week, closing at 1,866 on Friday. High price for the front contract year over year 2,056 and low 1,624
• Bitcoin rose 1.38% for the week closing at 26,903 on Friday. High price year over year 31,386 and low 15,632

The Week Ahead  

The carnage in rates continues as we come into a new week with the 10-year Treasury note yield making new local highs. Fed Chairman Powell is speaking at a roundtable this morning with Philadelphia Fed President Patrick Harker. Honestly, who cares at this point as this brutal sell off has more to do with the question, “Who’s going to buy all these bonds?” and less to do with monetary policy, unless Powell says the Fed will start up QE again! In D.C., our leaders averted a government shutdown for a few weeks. Unfortunately, these occurrences are becoming commonplace. This week is a big week for data with the headline being the September employment report on Friday.  

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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