Published April 3, 2019 / In Weekly Market Updates
Last Week's Market Moves
It’s quarter-end 2019 so we wanted to look back at the events during the last three months that have helped shaped our economy.
- Interest Rates - We have seen Treasury yields fall consistently since the end of last year. The 10 Year Treasury has fallen from a yield of 2.69% to 2.30% at quarter-end, or 30 basis points. Fears of a global economic slowdown, the inability of the U.S Economy to maintain its current rate of growth and low inflation have all driven rates lower.
- Monetary Policy - Since the fourth quarter of 2018, the Federal Reserve bank has completely reversed its stance on monetary policy. The almost systematic increase in rates we have seen over the last three years have stopped. The Fed had downgraded its outlook for the U.S Economy. Last Friday, White House economic advisor Larry Kudlow announced the administration feels the Fed should lower rates immediately. While the Fed doesn’t seem to quite express these same views, it is clear rate hikes are over for the immediate future.
- The Stock Market - While rates have fallen, the U.S equities market ended the quarter with some of the largest gains in the past 10 years. The equities market has been lifted by investors betting that central banks will keep interest rates low as economic growth slows. Most major indexes have recouped almost all of the losses from late 2018. The Dow Index ended the quarter at 25928.68 while the S&P closed at 2834.40. The Dow finished the quarter up 11% while the S&P closed up 13%, its best quarterly increase since 2008.
- U.S. Housing- After a falloff in housing starts and resales in the later-half of 2018, lower mortgage rates seem to have re-energized the industry, at least temporarily. Sales of U.S single-family homes increased to an 11-month high in February and sales from January were adjusted higher. The Commerce Department reported new home sales rose 4.9 percent to a seasonally adjusted rate of 667,000 units last mo. The results were well above forecasts.
- The Yield Curve – Last but not least, last week the yield on the U.S. 10 Year Treasury note fell below the yield on 3-month paper. The curve has always been considered a barometer of economic indicators and inverted for the first time since mid-2007. The inversion suggests a recession is possible. It normally isn’t immediate, but recessions have followed inversions from a few months out to two years later. According to data from Reuters, recessions have followed from every inversion over the past 50 years except for one time.
What to Look for This WeekPositive economic data out of Europe and China and optimism on a US-china trade deal continue to push money into the equity markets. The March Jobs report is released Friday and economists are looking to see job gains of approximately 180,000 for the month. The 10T should stau close to 2.50% for the week - unless the jobs report throws a curve ball.
Quote of the Week we like:
“If all economists were laid end to end, they will still not reach a conclusion”
1-month LIBOR Swap Rates**
|3 Years||Bullet||2.36%||- 7 bp|
|5 Years||Bullet||2.33%||- 6 bp|
|7 Years||Bullet||2.38%||- 6 bp|
|10 Years||Bullet||2.47%||- 6 bp|
|12 Years||Bullet||2.52%||- 8 bp|
|15 Year||Bullet||2.58%||- 8 bp|
|20 Year||Bullet||2.63%||- 8 bp|
Move signifies change in swap rates or treasuries since 3/21/2019
|2 Years||2.30%||- 11bp|
|3 Years||2.26%||- 8 bp|
|5 Years||2.29%||- 5 bp|
|10 Years||2.47%||- 7 bp|
|30 Years||2.88%||- 9 bp|
**Note: Rates above are mid-market swap rates as of NY market close 4/2/2019. All rates are subject to change. Dealer pricing may include additional swap fees, contact PRM for swap pricing analysis and a detailed report on pricing, pre-payment risk and swap fees.
Disclaimer: The purpose of this communication is to provide general information and estimates as of swap pricing for indicative purposes only. To obtain an independent swap quote and swap risk evaluations for a specific financing please call PRM Swap Desk with the terms of the proposed transaction. PRM offers independent pricing for interest rate swaps, caps, floors, swaptions as well as analysis of swap, fixed rate loan and insurance loan pre-payment risk.