Market Review

Volatility in interest markets was modest throughout May. The U.S. Treasury benchmark 10-year note traded within a 15-basis point (bp) range, ending the month just 4 bps lower. Paper up and down the curve traded likewise, but short Treasuries barely moved. 

 

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April was characterized by very good economic news, major fiscal policy proposals, and a somewhat surprising mini-bond market rally. The benchmark 10-year U.S. Treasury yield ended the month 12 basis points (bps) lower, and the 2- to 30-year curve slope ended the month 10 bps flatter.

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Anyone who thought that the new year might come with a return to some sense of normalcy has been sorely disappointed. On the policy front, the year began with an attack on the U.S. Capitol building by protestors hoping to force Congress to effectively override the results of the presidential election. The political makeup of the Senate was finally decided by runoff elections in Georgia. A massive surge in post-holiday Covid infections occurred, ironically at the same time as the widespread rollout of vaccines. 

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During February, the bond market reacted to a bevy of growth-positive economic releases, ranging from retail sales to personal income to industrial production. Moreover, the new administration's $1.9tn recovery package moved through the House and appeared to make it through the Senate largely intact. At the same time, optimism grew over the rollout of Covid vaccines. 

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All eyes remained on the pandemic and policy as the new year began. An anticipated post-holiday spike in Covid infections materialized and then began to abate by midmonth. Democratic victories in Georgia increased the likelihood of additional stimulus. With positive economic releases early in the month, "risk-on" remained the preferred trade.

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The challenge in writing periodic market commentaries is often to make interesting what was essentially more of the same. Not a problem for 2020. It is difficult to overstate how extraordinary the year was. A pandemic, remote conferencing technology, and government economic policies created a sea of change that will be felt for years to come. 

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