Market Insights – October 15, 2018

October 15, 2018 Chatham Financial

Markets Go Up, Markets Go Down

View this week's rates.

Prior Week Summary

Equities took the market for a ride last week, trading with elevated volatility that brought the Dow Jones Industrial Average lower by roughly 1,000 points (-4.1%) on a week-over-week basis. Many theories were offered as to the cause of the unexpected and sudden shock, but for fixed income market participants, the volatility caused some analysts (and politicians) to question if the Fed would adjust the trajectory of its monetary policy. The re-pricing of equities coincided with a resumed flattening of the term structure of interest rates and a drop in the long-end that saw 10-year Treasury yields trade as high as 3.25% intraday before ending the week at 3.16%. The spread between the 2-year and 10-year Treasury notes fell nearly four basis points to a level of 30 basis points as of Friday’s close.

The week’s economic data releases were relatively uneventful when compared to the volatility in markets. The Labor Department reported that producer prices rose 0.2% in September as the cost of air and railroad transportation costs saw relative gains of 5.5% and 1.4%, respectively. Excluding the impact of food, energy and trade services, prices rose 0.4% in September, the largest monthly gain since January. On the consumer side, prices rose 0.1% in September, bringing the yearly change to 2.2% on the core measure. Oddly, the figures were influenced by a sharp drop (3%) in the price of used vehicles, representing the largest drop in the category in fifteen years.

The Look Forward

The data calendar is full this week with updates expected for retail sales, the housing markets, as well as manufacturing activity. The market will also be listening very closely to the many Fed speakers scheduled to speak on monetary policy this week.

 

Rates Snapshot

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

Source: Bloomberg Finance L.P.

 

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.

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