By: Ariel Segal
The upward revision for the January retail sales number balanced out February’s reported -3.0% mark, which was below the surveyed -0.5% estimate. Inclement weather in large portions of the country slowed down sales, but March sales are expected to pick up again with the warmer weather and fresh round of stimulus.
Existing home sales came in below estimates, with its lowest level since August. Rising mortgage rates and higher asking prices due to limited supply have decreased the current affordability. However, the reason to a lower number of sales is due more to lack of supply rather than less demand at these price levels.
Officials in at least 20 states have committed to opening vaccine appointments to all adults in either March or April, ahead of President Biden’s deadline of May 1st. Over 447 million vaccine doses have been distributed worldwide, with 130 million of them being distributed in the U.S.
Fixed Income Market:
By Joseph Colleran
For the first time in five weeks, Corporate Bond spreads have tightened versus UST’s, albeit slightly. IG spreads were 2-3 basis points tighter on the week while HY bonds tightened 5bps. It should be noted that this occurred in the midst of the continuing rise in UST yields, so although corporate spreads tightened versus USTs, they were actually higher in yield /lower in price week over week. The biggest story was Fed Chairman Powell’s much anticipated commentary following Wednesday’s announcement that the Fed (as expected) left the benchmark Fed Funds range unchanged at 0 – 0.25%. In his comments, Powell reiterated his lack of concern regarding the recent spike higher in UST rates. In many market participant’s eyes, this paves the way for a continuing rise in yields as well as a steeper curve. The UST 10yr currently sits at 1.70% up from 1.60% last week.
In the near term, the $1.9 TRILLION relief/stimulus package is helping to sustain the equity and corporate bond rallies as both markets continue to hold their momentum. We caution our clients regarding purchasing long duration corporates as we continue to believe rates will trend higher which will negatively impact bonds with longer maturities.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $0.6 BLN
IG Bond Funds up $5.4 BLN
HY Bond Funds up $0.4 BLN
Municipal Bond Funds up $1.05 BLN
Domestic Equity Funds down $0.6 BLN
IG Bond Funds up $3.3 BLN
HY Bond Funds down $5.3 BLN
Municipal Bond Funds up $0.9 BLN
By: James Zurovchak
Both DJI and S&P 500 set new all-time closing highs again last week, however neither could hold onto their gains finishing -0.5% and -0.7% respectively. NASDAQ fared no better finishing -0.8% on the week. The US 10yr Treasury continues to weigh on the equity markets as yields hit 1.75%, a 1+ year high, reflecting growing fears of inflation that were stoked by Fed Chairman Powell reiterating that they are willing to let inflation rise above 2% in the short term. He echoed the Fed’s sentiment that the inflation spurred by the reopening of the economy will be transient. 9 of 11 GICS sectors were down on the week, led lower by Energy (-7.5%), Financials (-1.6%) and Technology (-1.4%). Health Care (+0.4%) and Consumer Staples (+0.4%) were the only gainers on the week. Value and Growth were on par with each other finishing -0.8% and -0.9% respectively. Small Caps underperformed this week posting a 2.8% decline. With 10yr US Treasury firmly in oversold territory, many are looking for a relief rally that will spur the equity markets higher in the short term.
By Anthony Minardo
The message at last week’s FOMC meeting was exactly what Chairman Powell has been reiterating over the past few months.
The Fed continues to be very transparent, they are in no rush to raise interest rates, despite the signal of stronger growth as the economy recovers from the COVID pandemic and vaccines continue to be readily available. The Fed was clear that they will be data dependent when acting on future rate decisions and will not be influenced by the forecasts of the street.
The US dollar began the week stronger on the back of a 15% decline in the Turkish Lira when CB governor Agbal was fired by Turkish president Erdogan. The move was short lived, and the markets have settled back into the recent range and will continue to be influenced by the bond market and Fed speakers throughout the week.
By Brian Stigliano
What Is Bond Duration?
A bond’s duration refers to its sensitivity to changes in interest rates. In general, the greater the bond’s duration, the more its price will fall when interest rates rise (or rise when interest rates fall). The two primary factors that affect a bond’s duration are its time to maturity and its coupon rate.
It’s important to note that a bond’s maturity does not necessarily equal its duration (unless it’s a zero-coupon bond). Bonds that have a shorter time to maturity will be less affected by changes in interest rates whereas bonds with a longer time to maturity will be more affected. Therefore, an investor should be properly rewarded for taking on more duration risk.
A bond with a greater coupon rate will have a shorter duration and a bond with a lower coupon rate will have a longer duration. This is because the greater coupon rate helps an investor recapture the original cost faster than a bond with a lower coupon rate.
An investor should consider a bond’s duration when making an investment as a bet on which way interest rates may move and when there may be a use for the money. For example, one would want to invest in long duration bonds if he/she is confident that interest rates will be falling. Conversely, one would want to shorten the duration of a portfolio if he/she believes that interest rates will be rising.
Last Week's Economic Data 3/22
|Last Week's Economic Data||Actual||Survey|
|Retail Sales Advance MoM||-3.0%||-0.5%|
|FOMC Rate Decision (Upper Bound)||0.25%||0.25%|
|Initial Jobless Claims||770k||700k|
This Week's Economic Data 3/22
|This Week's Economic Data||Release Date||Survey|
|New Home Sales||3/23/21||870k|
|Durable Goods Orders||3/24/21||0.6%|
|Initial Jobless Claims||3/25/21||730k|
|GDP Annualized QoQ||3/25/21||4.1%|
|Wholesale Inventories MoM||3/26/21||0.8%|
|Source: Bloomberg L.P.|
Market Data Values 3/22
|Interest Rates||Current||WoW||MoM||YoY||US Swap Spreads||Current||WoW||MoM||YoY|
|1 Month Libor||0.11%||(0.0 bp)||(0.8 bp)||(82.1 bp)||12-Month||+15 bp||+1.1 bp||+2.3 bp||(38.3 bp)|
|3 Month Libor||0.19%||+0.9 bp||+1.5 bp||(101.4 bp)||2-Year||+12 bp||+1.1 bp||+1.8 bp||(5.9 bp)|
|6 Month Libor||0.20%||+0.7 bp||+0.0 bp||(79.0 bp)||3-Year||+13 bp||+2.4 bp||+1.9 bp||+3.4 bp|
|12 Month Libor||0.28%||(0.5 bp)||(0.9 bp)||(65.7 bp)||5-Year||+10 bp||+1.6 bp||(3.2 bp)||+4.6 bp|
|Fed Funds Effective||0.07%||(13.0 bp)||7-Year||+2 bp||+1.1 bp||(7.1 bp)||+13.5 bp|
|SOFR||0.01%||(1.0 bp)||(5.0 bp)||10-Year||+2 bp||+8.2 bp||+21.1 bp||+115.0 bp|
|US Treasury Yields||Current||WoW||MoM||YoY||30-Year||(25 bp)||+6.8 bp||+14.6 bp||+152.2 bp|
|12-Month||0.06%||(0.5 bp)||+0.8 bp||(2.6 bp)||Equity Markets||Current||WoW||MoM||YoY|
|2-Year||0.15%||(0.2 bp)||+3.8 bp||(16.4 bp)||Dow Jones||32,719||+0.3%||+3.8%||+70.6%|
|3-Year||0.32%||(1.5 bp)||+9.4 bp||(5.5 bp)||S&P 500||3,944||+0.8%||+1.7%||+71.1%|
|5-Year||0.86%||+2.9 bp||+25.8 bp||+39.8 bp||NASDAQ||13,439||+1.7%||(0.7 %)||+95.4%|
|7-Year||1.33%||+6.0 bp||+33.5 bp||+60.4 bp||Currencies||Current||WoW||MoM||YoY|
|10-Year||1.68%||(0.2 bp)||+3.8 bp||(16.4 bp)||Euro||1.1936||+0.1%||(1.8 %)||+11.3%|
|30-Year||2.38%||(0.2 bp)||+3.8 bp||(16.4 bp)||Japanese Yen||108.7200||+0.4%||(3.3 %)||+2.3%|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY||British Pound||1.3865||(0.3 %)||(1.4 %)||+20.1%|
|12-Month||0.21%||+0.6 bp||+3.1 bp||(40.8 bp)||Canadian Dollar||1.2521||(0.4 %)||+0.8%||+15.8%|
|2-Year||0.26%||+1.0 bp||+5.6 bp||(22.3 bp)||Australian Dollar||0.7749||(0.1 %)||(2.1 %)||+32.7%|
|3-Year||0.45%||+0.9 bp||+11.3 bp||(2.1 bp)||Swiss Franc||0.9233||+0.5%||(2.9 %)||+6.7%|
|5-Year||0.96%||+4.5 bp||+22.6 bp||+44.4 bp||Israeli Shekel||3.2985||+0.2%||(1.0 %)||+12.1%|
|7-Year||1.35%||+7.1 bp||+26.5 bp||+73.9 bp||Bitcoin||56,577||+0.3%||+3.0%||+782.0%|
|10-Year||1.70%||+8.0 bp||+24.9 bp||+98.6 bp||Commodities||Current||WoW||MoM||YoY|
|30-Year||2.13%||+6.6 bp||+18.4 bp||+135.8 bp||Gold||1,739||+0.4%||(3.9 %)||+16.0%|
|Silver||26||(2.0 %)||(8.6 %)||+103.9%|
|Copper||412||(0.6 %)||(0.4 %)||+88.2%|
|Source: Bloomberg L.P.||Crude Oil||61||(6.5 %)||(0.5 %)||+172.7%|
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