Broker Check

Market News & Commentary - From The Desk Of David Loesch 01.25.24

January 24, 2024

Yields up ~10bps across the curve over the past two weeks. We have been telegraphing a pullback for the last few weeks and are starting to see this now.

• Bond traders are growing convinced that US Treasury yields are on the brink of returning to how they have traded for most of their existence, seeing the 10T steepening. Inversions are not typical; however, until we see some "consistent" data from the economic numbers, we will continue to see the curve steepen based on recent activity. Overall, yields have moved up over the past two weeks. We think we will see a 4.25% on the 10-year T until it settles in.
• Blackrock told their investors to approach the start of 2024 with prudence as US policymakers will likely wait until midyear to start cutting rates. They are urging patience to start the year and look for better buying opportunities late in the first quarter or early in the second quarter. We have also been of this opinion, letting our accounts and prospects know we should see a pullback in yields (higher) as we have had a run-up over the last 75 days. However, the peak (as Blackrock indicated yesterday as well) is behind us in yields, and we will see rate cuts this summer.
• Why are yields moving? Applications for unemployment benefits unexpectedly dropped last week to the lowest level in more than a year, underscoring the labor market's resilience. The job sector has finally reached pre-pandemic levels. It took almost four years for it to recover. There have been 21 months of growth. The bottom line is that labor remains tight; this is one of the main reasons (along with the supply chain) we are seeing yields move up.
• Bloomberg recently published an article stating that jobless claims data should not be taken at face value. These numbers are at historical lows, and the 525bps move over the past 2.5 years did little to shake it up. Bloomberg analysis finds claims are suppressed by a historically low percentage.
• Atlanta FED president Bostic urged policymakers to proceed cautiously regarding rate cuts. We have all FED members speaking of rate cuts; however, I think they are all trying to "set expectations" on when that cut will transpire, and the market got a bit too ahead of itself.
• Municipal bond funds are experiencing a positive shift in demand as retail investors respond to the significant rally in state and local government debt. Last week, investors added almost $900 million to municipal bond funds, the highest weekly inflow in a year.
• Bill Gross, the co-founder of PIMCO, indicated this week the FED should stop widening its balance sheet and start to cut rates. In his opinion, the FED does not have the right philosophy, nor is it taking the correct policy actions, which could push us into a recession. Gross has lost a lot of followers over the past few years; however, he is still well-versed in the Fixed Income markets.

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David Loesch
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Katy, TX 77450
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