The last few weeks have had some stunning developments with regard to the cost of labor figures, stunning in their quickness and severity. I have to admit, for many months, I bought into the whole tra...
Treasury yields were front and center last week as equities and corporate bonds quietly ground higher and tighter. All through last week, longer-dated Treasury notes and bonds rallied and the yield curve flattened 11 basis points despite large funding operations and the May CPI coming out higher than expected. The reasons for the rally sit squarely with the flow of funds. Domestic banks, global bond funds, and pension funds have been buying Treasuries in size. For banks, the culprit is a combination of swelling deposits and poor loan demand. Banks seemed to be waiting for a further backup in yields to make their purchases. When yields started going the other way, a fear of missing out triggered the buying. For global bond funds, Treasury yields, adjusted for currency hedging, are cheap to other G7 government bonds, while for pension funds who have over weighted equities to bonds and have won big-time, we have seen rebalancing out of stocks and into bonds. Additionally, there has been some talk about mortgage servicers purchasing duration as mortgage rates have once again dipped below three percent.
- The S&P 500 rose 0.42%. The average daily move was 0.19%. The index set a new all-time high on Friday.
- The NASDAQ advanced 1.8%. The average daily move for the week was 0.40%.
- The two-year Treasury yield was unchanged for the week, closing at .148% on Friday.
- The 10-year Treasury yield decreased 11 basis points for the week, closing at 1.45% Friday.
- The VIX Index dropped 5% for the week, closing at 15.65 on Friday.
- The MOVE Index rose 2% for the week, closing at 50.85 on Friday.
- Five-year Investment Grade Corporates (as measured by Markit CDX) tightened one basis point for the week, closing at 50 basis points on Friday.
- High-yield corporate debt (as measured by Markit CDX) tightened nine basis points for the week, closing at 278 basis points on Friday.
- U.S. Dollar Index rose 0.5% for the week, closing at 90.55 on Friday.
- WTI Crude rose 2% for the week, using the July WTI Futures contract, closing at 70.91 on Friday. Crude is now higher than any point since October 2018.
- Gold, as measured by the August 2021 futures contract, fell 0.7% for the week, closing at 1,879 on Friday.
- Bitcoin fell 4% for the week, closing at 37,669 on Friday.
The Week Ahead:
Stocks and Treasury yields are mostly unchanged as we start the week. This week is all about the FOMC meeting which concludes Wednesday. In the six weeks between this meeting and the last, there has been a decent amount of Fed-speak pointing to a bit of a hawkish shift with regards to paring back some of the Fed’s extraordinary monetary policy a bit earlier, as in 2022 as opposed to 2023. The Fed knows it is playing a nail-biting game of chicken with the sharp rise in the cost of just about anything. They continue to push the message that these price spikes and shortages are transitory. However, they know the stakes are very high. Chairman Powell does not want to go down as the Arthur Burns of the 21st century!
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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