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    Capital Markets | 4 min read

    Market Commentary: Week of February 22, 2021

    Last Week:

    Last week was dominated by the surge in long-term interest rates and a steepening of the yield curve. The 10-year Treasury jumped 13 basis points, while the two-year remained firmly anchored. The sell-off in rates has been orderly, so far, as we have not seen much forced duration selling yet from the mortgage market.

    With regard to corporate and municipal fixed rate debt, so far corporates have hung in, while municipals have shown their first sign of “weakness” since last March. We use quotation marks around weakness because Municipal spreads to Treasuries are weakening from all-time highs. Stocks are showing a little weakness, especially in the red-hot tech sector, to rising rates.

    In other news, Texas became a third-world country for the week with a complete failure of its power grid. Texas is a vital state for the country and there should be some hits to the economy with regard to energy and agricultural goods.

    Meanwhile, Bitcoin continued its romp, surging another 15% for the week and setting another new all-time high.

    • The S&P 500 declined 0.6% for the week. The average daily move for the week was 0.18%.

    • The NASDAQ dropped 1.6% for the week. The average daily move for the week was 0.43%.

    • The two-year Treasury yield increased one basis point for the week, closing at 0.11% on Friday.

    • The 10-year Treasury yield increased 13 basis point for the week, closing at 1.34% on Friday.

    • The VIX Index increased 16% for the week, closing at 22.05 on Friday.

    • The MOVE Index jumped 29% for the week, closing at 60.4 on Friday.

    • Five-year Investment Grade Corporates (as measured by Markit CDX) widened one basis point for the week, closing at 52 basis points on Friday. High yield corporate debt (as measured by Markit CDX) widened seven basis points for the week, closing at 295 basis points on Friday.

    • U.S. Dollar Index was flat for the week, closing at 90.36 on Friday.

    • WTI Crude was unchanged for the week, using the April WTI Futures contract, closing at 59.26 on Friday.

    • Gold, as measured by the April 2021 futures contract, dropped 2.5% for the week—closing at 1,777 on Friday.

    • Bitcoin surged 15% for the week, closing at 56,333 Friday—yet another new all-time high.


    The Week Ahead:

    This morning, equities are opening up weak as bonds continue to sell off. The 10-year is at 1.36% (it got as high as 1.40% overnight) and has room to run before hitting yield resistance of 1.43%. So far, the move continues to be orderly. It will be important to see if bears take some profits by covering their winning shorts or if more pile on to the bear-curve steepener.

    There has been some very good news with regard to the Pfizer vaccine stopping the COVID-19 spread. So far, the optimism is making itself felt in rates as growth and what we would call “good inflation” are projected to be higher than previously expected a couple of quarters from now. Hopefully, vaccine distribution problems will improve to solidify that sentiment.

    It is a busy economic calendar this week with main reports on Home Sales, Durable Goods, Personal Consumption, and all-important Initial Jobless Claims.

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    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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    © 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.

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    John Tuohy

    John Tuohy is CEO of SWBC Investment Services, LLC, a Broker/Dealer and SWBC Investment Company, an SEC Registered Investment Advisor (RIA). In his role, John is responsible for identifying, developing, and executing the division's strategic plan and all business development, sales, and marketing activities.

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