October 2020 Market Review

The 10-year U.S. Treasury note yield had its biggest move in months, rising 20 basis points (bps) to 0.84%.  Likewise, the 30-year bond yield jumped by 18 bps to 1.64%. With short rates anchored at very low rates, the 2- to 30-year yield curve slope steepened by 15 bps.
 
Bond markets took a different path than equity markets, particularly late in the month. The last week in October witnessed the rare event of rising Treasury yields with falling equity prices, calling into question the value of bonds as an equity hedge. Generally, credit markets were “risk-on” during the month, despite an increase in Covid cases and uncertainty surrounding the election.
 
Data releases for the month tended to be constructive for the economy, led by a strong quarterly GDP report. Personal spending, retail sales, and sentiment were higher than market expectations. The unemployment rate fell significantly to 7.9%.
 
Inflation discussions have become more prominent among market participants of late.  Producer Price Index numbers came in higher than expected. Core CPI registered at 1.7%, about what the market had anticipated. Ten-year TIPS break-evens rose by about 8 bps.

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