Macro Commentary: 

The nation’s budget gap expanded to $864.1 billion in the month of June. The Paycheck Protection Program overseen by the Small Business Administration was the most significant contributor towards the U.S. posting its largest budget gap on record. 

The two biggest school districts in California said they would only offer remote learning in the fall as it reports a record number of people hospitalized with coronavirus. Yesterday, Florida reported the largest one-day rise since the pandemic began with 15,300 new cases.

Senate Majority Leader Mitch McConnell has said that there will be a draft of another coronavirus-related relief package by next week.

Fixed Income Market:

The “summer doldrums” have shown up in earnest.  Activity in the credit markets has slowed materially from the surprisingly high volumes seen in June.  Since our last update two weeks ago, credit spreads have narrowed with IG tighter by 5-10 bps and HY tighter by 30.   The High Yield market continues to trade in lockstep with equities as the tighter spreads correlate directly with the 6% climb in US equities (using S&P as proxy).   The IG new issue market also remains quiet with the kick off of earnings season keeping many of the larger issuers on the sidelines.

One constant throughout the last few months has been the steady flow of new money into both corporate and municipal bond funds.  On the week IG taxable funds experienced $7.2bn of inflows while muni funds saw $644mm of new money – both according to Lipper.  We find it somewhat surprising that with the uncertainty hanging over the consistency of tax inflows (due to impact of COVID -19) the municipal market hasn’t seen spreads widen or demand drop of to any material degree.

Foreign Exchange:

The US dollar remains contained within its recent range with low volatility due to the summer markets. Concerns of a second wave with increasing COVID-19 cases throughout the majority of the U.S. has been offset by the gradual recovery as the economy continues to re-open.  CPI (Tuesday), Industrial production (Wednesday), and initial jobless claims (Thursday) are forecasted to have risen slightly displaying that activity has recovered.  The market is beginning to focus on the US election and the possibilities of a change in economic policy which may affect the strength of the US dollar versus safe haven currencies.

Financial Planning:

Behavioral Biases to Avoid: Anchoring

Anchoring is a behavioral bias in which a psychological benchmark holds too much value in one’s decision-making process.  As the name suggests, one’s benchmark does not change as new information becomes available.  For investors, the psychological benchmark is generally a purchase price, a target return, or a certain amount of proceeds.  

To counter the effects of anchoring, one should make sure that he is adjusting his expectations for an investment as new information comes to light.  It can also be helpful to choose a “floating” benchmark (i.e. – relative performance to peers) rather than an absolute benchmark (i.e. – target return or proceeds).  Lastly, maintaining a long-term outlook and a well-diversified portfolio is typically the best way to mitigate the effects of anchoring.

Last Week's Economic Data July 13th

Last Week's Economic DataActualSurvey
Initial Jobless Claims1314k1375k
Wholesale Inventories MoM-1.2%-1.2%
PPI Final Demand MoM-0.2%0.4%
This Week's Economic DataRelease DateSurvey
CPI MoM7/14/200.5%
Retail Sales Advance MoM7/16/205.0%
Initial Jobless Claims7/16/201250k
Housing Starts7/17/201180k

This Week's Economic Data July 13th

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.17%+0.9 bp(2.0 bp)(215.7 bp)12-Month+11 bp+0.2 bp(1.9 bp)+1.7 bp
3 Month Libor0.28%(0.2 bp)(4.6 bp)(204.7 bp)2-Year+7 bp+0.1 bp(0.5 bp)+5.5 bp
6 Month Libor0.34%(2.5 bp)(9.3 bp)(189.0 bp)3-Year+5 bp+0.2 bp(0.8 bp)+6.2 bp
12 Month Libor0.48%(3.4 bp)(11.2 bp)(175.0 bp)5-Year+4 bp+0.7 bp(2.7 bp)+8.0 bp
Fed Funds Effective0.09%+1.0 bp(232.0 bp)7-Year(2 bp)+1.0 bp(1.7 bp)+6.4 bp
SOFR0.10%(0.0 bp)+3.0 bp(236.0 bp)10-Year(2 bp)(2.4 bp)(4.9 bp)+29.2 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(46 bp)(6.7 bp)(6.2 bp)+30.4 bp
12-Month0.15%(0.3 bp)(2.5 bp)(180.6 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.16%+0.0 bp(3.6 bp)(169.0 bp)Dow Jones 26,487 +1.6%+3.4%(3.1 %)
3-Year0.19%+0.2 bp(3.6 bp)(163.8 bp)S&P 500 3,225 +1.3%+6.0%+7.0%
5-Year0.30%(0.5 bp)(3.0 bp)(157.3 bp)NASDAQ 10,803 +1.7%+12.7%+31.0%
7-Year0.48%(1.8 bp)(5.5 bp)(150.0 bp)CurrenciesCurrentWoWMoMYoY
10-Year0.64%+0.0 bp(3.6 bp)(169.0 bp)Euro1.1359+0.4%+0.3%+0.9%
30-Year1.34%+0.0 bp(3.6 bp)(169.0 bp)Japanese Yen107.2500+0.1%+0.1%+0.6%
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.2606+0.9%+0.0%+0.7%
12-Month0.26%(0.1 bp)(4.5 bp)(178.9 bp)Canadian Dollar1.3572(0.2 %)-(3.9 %)
2-Year0.22%+0.2 bp(4.1 bp)(163.5 bp)Australian Dollar0.6979+0.1%+0.9%(0.9 %)
3-Year0.24%+0.4 bp(4.4 bp)(157.5 bp)Swiss Franc0.9412+0.1%+0.9%+4.6%
5-Year0.33%+0.2 bp(5.8 bp)(149.4 bp)Israeli Shekel3.4369+0.5%+1.3%+3.3%
7-Year0.47%(0.8 bp)(7.2 bp)(143.5 bp)Bitcoin 9,295 +0.2%(2.0 %)(14.1 %)
10-Year0.63%(2.3 bp)(8.5 bp)(139.8 bp)CommoditiesCurrentWoWMoMYoY
30-Year0.88%(6.6 bp)(9.8 bp)(138.7 bp)Gold 1,807 +1.3%+4.4%+27.7%
Crude Oil41(0.3 %)+11.7%(32.7 %)
Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 |  


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