- Stocks seek catalyst to climb. (10:11am ET) Domestic markets are modestly higher this morning as market participants search for reasons to push stocks higher; policy focus is turning to tax reform amid a light week of economic data. Yesterday, the major indexes rose off of their lows throughout the day after a shaky start, although the Dow (-0.2%) extended its losing streak, and the S&P 500 (-0.1%) slipped as losses in telecom (-0.7%) and real estate (-0.6%) outweighed gains in healthcare (+0.4%) and materials (+0.3%). Overseas, the Nikkei (+1.1%) recouped most of Monday’s loss, while the Hang Seng (+0.6%) advanced and the Shanghai Composite (-0.4%) dropped; European equities are narrowly mixed in afternoon trading after Monday’s declines. Meanwhile, the dollar continues to trade near a four-month low, WTI crude oil ($48.19/barrel) is up 1%, COMEX gold ($1257/oz.) is near flat after yesterday’s 0.6% gain, and the yield on the 10-year Treasury is down a basis point (0.01%) to 2.37%.
- Flight to quality drives Treasuries higher. Treasury prices moved higher all last week as market volatility led investors to the safety of risk-off assets such as Treasuries. The yield on the 10-year Treasury finished the week lower by 0.10% to 2.40%. Heading into yesterday’s session, 10-year yields were lower by another 0.03% as volatility in equity markets continued. In this week’s Bond Market Perspectives we discuss municipal bonds, which are looking more attractive relative to other high-quality bond sectors and may present an opportunity for investors looking for diversification within high-quality fixed income.
- International bonds follow U.S. Treasuries. Higher-quality bond prices in Germany rose last week, with the 10-year Bund finishing lower in yield from 0.43% to 0.40%. This puts the U.S. Treasury 10-year yield advantage to the German Bund 10-year at 2.00%.
- Treasury yield curve flattens. The 2-year Treasury moved lower in yield last week, but less dramatically than the 10-year, leading to a flatter yield curve. This brings the 2-year to 10-year slope, a measure of the steepness of the yield curve to 1.14% as of last Friday, flatter by 0.03% on the week.
- U.S. Treasury futures decline slightly. The latest Commitments of Traders report, released by the CFTC (data through March 21, 2017) shows that the net-short position in the 10-year Treasury declined, as traders covered short bets as the equity market sold off last Tuesday and bonds rallied. This is still elevated, but it is the smallest short position for the 10-year since December 2016 as traders reduced their bearish positions. Exposure by large speculators reached the eighth straight week of increased shorts in 3-month Eurodollar futures, a signal that rate hikes are expected.
- High-yield corporate spread widens. The spread of high-yield corporate bond yields over comparable Treasuries widened from 3.8% to 4.0% on the week. Much of this move can be attributed to increased volatility in risk-on assets amid the decline in equities last Tuesday. This, coupled with stellar performance last year of 17.1% (Bloomberg Barclays High Yield Index), led many investors to take profits, shedding risk and increasing credit quality.
- Dow down again. The Dow fell for the eighth day in a row Monday (the S&P 500 has been down seven of eight days), but the Nasdaq and small caps managed to close slightly green. The Dow was last down eight in a row the summer of 2011, but it hasn’t been down nine days in a row since early 1978. Since 1900, it has now had 29 eight-day losing streaks. What is unique about this time? It is the closest ever to new highs (only off 2.7%) and down the second-least ever during the streak (-1.9%).
- Big reversal in small caps. The Russell 2000 (RUT) was down 1.45% at its lows yesterday morning, but managed to close slightly green. You have to go back to late February 2016 for the last time it had a reversal like that. In fact, the previous 25 times the RUT was down as much as it was yesterday, it closed red. In other words, the reversal yesterday was quite significant.
- Evans (Dove)
- GDP (Revision) (Q4)
- Eurozone: Industrial, Services & Consumer Confidence (Mar)
- China: Mfg. & Non-Mfg. PMI (Mar)
- Personal Income (Feb)
- Kashkari (Dove)