The up and down staccato of risk-on, risk-off is off this morning as a fresh tariff proposal of $3.1 billion against EU goods and rising virus case counts have global stocks lower and our stock futures pointing in the same direction.  Yesterday, the market was able to ignore the case counts as thoughts of a $1.0 trillion stimulus bill made the rounds and led to a risk-on day with stocks higher. Treasuries didn’t move much then and they’re not moving much this morning as the fixed income crowd remains more circumspect about economic recovery and also about trade wars too, apparently.  Finally, if you’re behind in your digital transformation efforts, give our latest podcast episode, “Innovating Your Digital Offerings” a listen. Jason Henrichs from FinTech Forge and Patrick Sells from Quontic Bank, recently named “Digital Banker of the Year” by American Banker, share their insights on how community banks need to approach their digital offerings. Listen on iTunes and Spotify.

newspaper icon  Economic News


U.S. stocks rose to the highest level yesterday since June 10 on the above mentioned speculation Trump will seek additional fiscal stimulus, while the Markits June Manufacturing PMI  showed the factory sector nearing expansion territory (49.6) after dipping as low as  36.1 in April. The S&P 500 jumped 1% and the Nasdaq hit an all-time high as investors continue to focus on signs the economy is bouncing back from the shutdown. The rally in stocks occurred despite several states seeing sharp increases in virus cases that could lead to further restrictions. Yesterday, equity investor looked past most of the virus news and focused on improving economic numbers, a Fed in full accommodative mode, and the rumored additional fiscal stimulus. As has been the case for awhile, however, the fixed income market remains doubting as shown in the yield graph of the 10-year Treasury below.


US Treasury 10 Year Yield


As the graph shows, while equities have been busy recouping plenty of the lockdown-induced losses, 10-year Treasury yields have remained remarkably unmoved by events. Except for a little foray to 90bps earlier this month, the range of 0.60%-0.75% has held. Whether it’s virus case counts increasing, Fed QE, foreign buying, or some other reason, Treasuries aren’t moving on the V-shaped recovery story just yet, and that’s keeping things very range-bound with little on the horizon to break that trend.



line graph icon  Revisiting Muni’s-Three Months After the Meltdown


We’ve periodically looked at the Muni sector after the tumultuous two-week period in March when corona-led lockdowns catalyzed  indiscriminate selling in the muni market with yields jumping, in some case, as much as 200bps. Since then, market volatility has calmed and yields have generally declined to levels that prevailed just prior to the volatility that got underway on March 10. But an interesting thing has also developed in the market, and we highlight that  in the graph and charts that follow.


Municipal Curve

  • Muni Curve Has Steepened – The graph depicts the AAA-grade municipal market with the current curve (solid red line)  compared to the curve on March 2 (dashed blue line), well before any spasms of corona-induced volatility.  Notice how the short end of the curve has rallied well through the March 2 levels while longer end yields have remained anywhere from 4 to 10bps higher. This shows that the retail investor, who loves the short-end of the curve, has jumped back into the market with both feet but the longer-end institutional investor remains a little more hesitant.
  • How to Play It — Bank investors may want to consider swapping shorter maturity bonds (inside 5yrs), realizing a handsome gain thanks to overeager retail investors. The proceeds can then be reinvested further out the curve capturing yields that remain equal to or better than yields that existing prior to the March market volatility.

If interested, please contact your CenterState Bank representative who can provide you with current bids and offerings in the municipal market.


bar graph iconAgency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.37 0.50 0.65 0.81 1.50 2.20
0.50 0.35 0.48 0.63 0.77 1.35 2.09
1.00 0.32 0.45 0.57 0.72 1.33 2.00
2.00 0.35 0.50 0.63 1.62 NA
3.00 1.52 NA
4.00 1.47 NA
5.00 1.43 NA
10.00 NA


Tags: Published: 06/24/20 by Thomas R. Fitzgerald