Fixed Income Market Commentary

Fixed Income

Fixed Income Market Commentary

Read the fixed income commentary from Executive Vice President Kevin Giddis.

March 16, 2018

The Treasury market is trading slightly higher this morning as investors of bonds were rewarded with a week of weaker than expected data, especially where the topic of inflation is concerned. The last numbers of the week are still coming in, but housing took a hit as Housing Starts fell 7.0% and Building Permits dropped 5.7% in the month of February. Later we will get Industrial Production (exp. up 0.4%) and Capacity Utilization (exp. 77.7%) for the month of February. This puts the market in an interesting spot because while the bias remains in favor of higher rates, the numbers could be telling a different story. The 10-year note has dropped another 3 basis points this week, and has fallen some 14 basis points since February 21st when we hit 2.95%. The bond market also digested a refunding this week, so when you think about it, dropping yields in the face of supply, all the while when the market participants are expecting higher yields, is quite an accomplishment. On the other side of the coin, credit is showing a few cracks, which may change the outlook for bonds, but not likely enough to push us through 3% on 10’s. Next week the Fed will likely raise rates, but the language from the FOMC may push yields in either direction. The longs will be looking for a softer forward stance, and the shorts will be looking for something that leads them towards 4 rate hikes in 2018. We can’t forget about or discount the “noise” either. If inflation and the Fed are not big factors in the directional move of Treasuries, anything to do with China or a trade war could likely make the longs nervous, especially if China threatens or retaliates by reducing or selling its position of Treasuries. While I don’t see this a major issue, this White House has proven to be anything but predictable, so traders will be on their guard as we roll through next week’s data. All in all, a good week for those that aren’t convinced that inflation is on an upward path and that economic growth is going to put the FOMC behind in its monetary policy. Have a nice weekend. 

The information contained herein is based on sources which we believe reliable but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities herein mentioned. This firm and/or its affiliates and/or individual shareholders and/or members of their families may have a position in the securities mentioned and may make purchases and/or sales of these securities from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Raymond James may also perform or seek to perform investment banking for entities referred to herein.

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