Market Review
What a difference a new year makes! Having been lulled into complacency with respect to volatility, financial markets – particularly the domestic equity markets – got a rude awakening in early February. Suddenly, the “short vol” trade came to a screeching halt, and equities entered a period of heightened volatility with a distinctly downward trend. Exacerbated by political developments (principally, fears of a trade war), revaluation of tech stocks, and the challenge of rising interest rates, equities finished the period in a downward swoon.
Read moreInterest rate worries and oversized bets on continued market stability led to severe gyrations in the stock market in February. The Treasury market followed suit, with significant intra-day price fluctuations. The yield of the 10-year note finished the month 16 basis points (bps) higher. The yield curve steepened by approximately 8 bps from 2 to 30 years.
Read moreBond markets sold off in dramatic fashion in January. The 10-year Treasury note yield rose 32 basis points (bps). The yield curve steepened modestly through 10 years, but flattened from 10 to 30 years. Equities posted large gains. The financial markets responded to more positive global economic news, strong earnings domestically, and momentum from the recently enacted Tax Cuts and Jobs Act of 2017.
Read moreThe volatility in weather conditions stands in stark contrast to the level of volatility in financial markets. During 2017, the yield on the 10-year maturity U.S. Treasury note rarely ventured out of a 25 basis point band, and ended the year only 8 basis points higher than where it began. Even more notable was the lack of volatility in domestic equity markets, where the VIX inched lower as stock prices surged.
Read moreAgainst a backdrop of generally positive economic news, enthusiasm over potential tax cuts, a roaring equity market, and an upward move in oil and commodity prices, the Treasury market had yet another month of limited volatility. Ten-year yields fell six basis points (bps) before rising to a 2.43% yield at month-end, just a few bps higher than the October close.
Read moreIt was another month of low volatility despite a considerable amount of news. The outlook for global growth has improved, as demonstrated in recent PMI releases, which included a surprisingly strong US ISM manufacturing number. Payroll data early in the month reflected the consequences of the summer’s hurricanes, but by mid-month, jobless claims suggested that this was a short-term phenomenon. Durable goods orders were up as well. The equity market continued its march forward. The Fed’s balance sheet normalization process began with (ultimately) little fanfare.
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