Another down week for the bond market. Additionally, after shrugging off mounting geopolitical risk as well as a bond market meltdown, equities joined the party last week in fretting about….geopolitical risk and a disorderly selloff in bonds! The Treasury yield curve continued to steepen, with 2s-10s less inverted by about 30 basis points on the week. At the beginning of September, 2s-10s stood at a negative 70 basis points. On Friday, we closed at negative 12 basis points. The 30-year bond broke through 5% for the first time since 2007 while the 10-year bumped right up against it. The main economic data release for the week was September Retail Sales, which showed continued robust consumer spending. Currently, real interest rates (TIPs) are now about 2.50%. While bond risk is skewed toward continued badness from a trading point of view, real yields above 2.50% should start to attract some real-money buying. We had a full calendar of Fed Speak and the prevailing message was a probable pause at the November FOMC meeting, but high(er) for longer. We got what I think was a short-covering, position squaring rally in Treasuries Friday, as the situation in Gaza continues to deteriorate.
We come in this morning with Treasury yields higher as the 10-year note breached 5% overnight. Global equities are down about 0.5%. Unfortunately, this week seems to be lining up as more of the same. I would look at any rally in bonds as an exit opportunity, certainly from a trading perspective. I think there will be real money buying but not enough in my opinion to reverse course in rates. It is a pretty big week for economic data with the biggest being Thursday’s release of 3rd Quarter GDP. Economists estimate that the quarter-over-quarter increase will be 4.5%. That is a very strong number and anything above that will be a further problem for rates.
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.
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.