Displaying items by tag: Treasuries

The Daily FINSUMMARY- Sponsored by ETF Action

US markets hit five-month highs as major averages climbed steadily up and to the right throughout the day.  A day after the Fed announced a very dovish position, tech shares (Apple) and positive earnings led domestic equities higher.  At the close, the S&P 500 (SPY 1.13%), the Dow (DIA 0.89%), and the Nasdaq 100 (QQQ 1.56%) all gained.

Jobless claims were down W/W (and below consensus estimates) and the Philadelphia manufacturing survey had mixed results.  Current conditions rebounded from last month, buoyed by increases in new orders and shipments.  However, future expectations fell to a three-year low.  Meanwhile, the Conference Board Leading Indicators Index rose for the first time in five months, primarily due to a bounce in equity markets and accommodative financial conditions.

Earnings & Movers: Micron Technology (MU 9.62%) was up big after beating estimates after yesterday's close while Apple surged (AAPL 3.68%) and hit a four month high on several analyst upgrades.  Darden (DRI 6.87%) was up on an earnings beat before the bell and Nike fell after hours on a revenue miss.  It was a bad day for Biogen (BIIB -29.23%) after its Alzheimer's drug was discontinued due to ineffectiveness.

Small-caps (IJR 1.31%) edged out large-caps (IVV 1.12%) but mid-caps (IJH 1.35%) led all sizes (and still do YTD).  With 10 of 11 sectors gaining, tech (XLK 2.51%) provided leadership on the shoulders of Apple while Financials (XLF -0.31%) lagged again, pushed down by banks (KBE -1.03%).

Emerging markets (EEM 0.14%) narrowly outperformed developed ex-U.S. (EFA -0.06%) as global regions were mixed.  Latin America (ILF -1.70%) was dragged lower by clouding uncertainty surrounding Brazil's (EWZ -2.30%) pension reform after former Brazilian President Temer was arrested on corruption charges.  The U.K. (EWU -0.18%) fell along with Developed Europe (IEV -0.27%) as EU officials deliberate over possible extension deadlines for Brexit.

Treasury yields remained largely unchanged with the 10-year settling at 2.54%.  Muted movement in yields had the Ag (AGG 0.02%) mostly flat while Investment Grade (LQD 0.19%) bested High Yield (HYG -0.02%).  While the 10-2 year spread remains at ~13 basis points, the spread between the 10-year and the 3-month T-bill dipped below 10 basis points for the first time since 2007.

The Dollar advanced (UUP 0.63%) as broad commodities declined (DJP -0.35%) along with Energy (DBE -0.67%), Precious Metals (DBP -0.42%), and Industrial Metals (DBB -1.18%).

(New York)

It finally happened. After dangling on the edge of an inversion for months, the US yield curve has just officially crossed into one. The gap between 3-month and 10-year Treasury yields is now negative. 10-year yields have been falling, recently hitting a low of 2.439%. Yield curve inversions are seen as the most reliable indicator of forthcoming recessions. Yields have been falling as a reaction to a highly dovish Fed and weakening economic data.

FINSUM: This is a reason to worry about he economy, but remember that there is often a long lag between an inversion and a peak in the stock market.

(New York)

There are a lot of good reasons to own Treasuries right now, and a lot of reason to be nervous about them. Let’s take a look. The biggest risks in the market at present are mostly about the budget deficit, which makes Treasuries look weak and inflation likely to jump (as it has historically during such spending). However, there are a lot of positives too. The big one is that the Fed looks ever more likely to adopt a permanently dovish stance as it may be changing its thinking about inflation. Additionally, economic weakness will be bullish for Treasuries, so coming to the end of the cycle is not catastrophic.

FINSUM: The best place to be on the yield curve is clearly at the short end—less rate risk and decent yields.

(Washington)

Investors may not be thinking about it much, but that does not mean the US deficit is not continuing at massive levels. This year will see another $1 tn shortfall in the US budget, a fact that the US Treasury will have to make up for by issuing lots of debt. This will be the second straight year of $1 tn Treasury issuance. So far the market has been happy to absorb the extra debt, and as such, the Treasury is planning to maintain a similar schedule of issuance this year.

FINSUM: The market seems to be a long way from having its fill of Treasuries, but at some point yields will move higher simply as a force of extra supply.

(Washington)

If that headline sounds like relief to your ears, read further. While there are no clear signs out of the Fed yet (other than increasingly dovish talk), new data is showing that the Fed may cut rates in 2019. The forward spread shows that traders are anticipating a rate cut at the beginning of the year. Two-year Treasuries have seen their yields slip below one-years’. This is the first time this has happened since 2008. According to a market strategist at Pimco, “This is a crystal ball, it’s telling you about the future and what the market thinks of the Fed and what it will do with its policy rate”.

FINSUM: We don’t think the Fed will cut in the first quarter unless something more drastic happens, but we are quite sure they won’t hike.