Prior Week Summary
The last trading week of the first quarter came to a close with little in the way of economic updates as the holiday-shortened week ended on Thursday afternoon in advance of the Easter holiday. The trend of curve flattening continued over the course of the first three months of the year, with the spread between the 2-year and 10-year LIBOR swap rates falling to just 22 basis points at quarter-end. In Treasury markets, the spread between the 5-year and 30-year part of the curve starts the second quarter at its flattest level in over a decade, with many in the analyst community expecting continued pressure of the slope of the curve.
On the data front, personal income growth grew at a 0.4% pace in February, matching the gain from the January period. Inflation, as measured by the PCE deflator, rose 0.2% in February and 1.8% on a year-over-year basis. The increase in the year-over-year inflation metric for the Fed’s preferred measurement certainly seems to bolster their case for a continuation of their tightening campaign.
As of this writing, there is roughly a 90% chance for another 25-basis point hike at the June meeting, up from roughly 40% at the beginning of the year.
The Look Forward
The second quarter starts with an active data calendar including the March jobs report on Friday. The consensus expectation is for a gain of 187,000 jobs and a reduction in the unemployment rate to 4.0%.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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