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Capital Markets
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4 min read
Last Week:
The rally in the long end of the treasury yield curve dominated the news last week. At one point on Thursday, the 10-year note traded at 1.26%, which was a very far cry from the two percent investors expected just two months ago. There was word that, as mortgage rates dropped through three percent again, servicers (or Wall Street desks that sold servicers options that add duration) began convexity buying.
The FOMC minutes for the June meeting revealed little in the way of surprises. Multiple members of the committee are simply doing what they are supposed to be doing, making sure that policy is appropriate for their outlook.
There has been much handwringing over the housing sector's super-cycle. We think it is a bit overblown, as homes are not being bid up by buyers with weak credit. In fact, quite the opposite. It is also important to remember that private equity firms have been on a buying tear for single-family homes. That is a different ballgame than it was in the early 2000s.
- The S&P 500 advanced 0.4%, ending Friday at another new all-time high. The average daily move was 0.63%.
- The NASDAQ increased 2.34%, ending Friday at yet another all-time high. The average daily move for the week was 0.47%.
- The two-year Treasury yield declined two basis points for the week, closing at .215% on Friday.
- The 10-year Treasury yield fell seven basis points for the week, closing at 1.36% on Friday.
- The VIX Index rose 7.4% for the week, closing at 16.18 on Friday.
- The MOVE Index increased 14.3% for the week, closing at 59.92 on Friday.
- Five-year Investment Grade Corporates (as measured by Markit CDX) widened one basis point for the week, closing at 48 basis points on Friday.
- High-yield corporate debt (as measured by Markit CDX) widened nine basis points for the week, closing at 280 basis points on Friday.
- U.S. Dollar Index was unchanged on the week, closing at 92.13 on Friday.
- WTI Crude declined 0.7% for the week, using the September WTI Futures contract, closing at 73.81 on Friday.
- Gold, as measured by the August 2021 futures contract, rose 1.6% for the week --closing at 1,810 on Friday.
- Bitcoin fell 0.8% for the week, closing at 33,690 on Friday.
The Week Ahead:
Coming in from the long weekend, Treasury yields are slightly lower this morning. Stocks are off a bit. The pain trade continues to lower Treasury yields, and since the markets generally zero in on the pain trade, we would not be surprised to see the 10-year yield challenge the 1.25% mark sometime this week. For stocks, we have the kickoff of second-quarter earnings releases. With regard to economic news, it will be a big week for inflation readings with CPI on Tuesday and PPI on Wednesday.
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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