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July 9, 2018

Municipals outperformed Treasuries across the curve as S&P Main Muni index turned positive on the year (+17 bps) during a holiday-shortened week that had moribund new issue supply and secondary flows. Mutual funds experienced -$189 mil. of outflows, snapping a seven-week streak of inflows, bringing the YTD total to ~$4.9 bil. Treasuries fell slightly on the week and the curve bear flattened after mixed jobs and business activity reports and hawkish Fed meeting minutes as trade tensions with China escalated. The mixed jobs report showed that non-farm payrolls for June exceeded forecasts at 213,000 and unemployment rose to 4.0% (from an 18yr low of 3.8%), but that wage gains unexpectedly slowed which indicates the labor market continues to absorb spare capacity. FOMC minutes reaffirmed a gradual rate path for the U.S. central bank. The market implied probability for rate hikes stands at...

Treasury 2s30s ended -8 bps flatter at 38 bps and 2s10s was -5 bps flatter at 27 bps – the narrowest since 2007 -- as the 2yr T-bill yield rose +6 bps (2.58%), the 10yr note yield rose +2 bps (2.85%), and the 30yr bond yield declined by -1 bp (2.96%). The MMD curve also flattened on the week, but to a lesser degree vs Treasuries. MMD 2s30s was -4 bps flatter at 126 bps and MMD 2s10s was -3 bps flatter at 79 bps. MMD in 2yrs was unchanged at 1.64%, MMD in 10yrs was bumped -3 bps to 2.43%, and MMD in 30yrs was bumped -4 bps to 2.90%. MMD outperformed Treasuries across the curve by an average of -1.31 ratios with the 2yr spot continuing to reach rich at 64.1% of Treasuries, while the 5yr, 10yr, and 30yr spots continue to...

We like 5-8 Yr Calls…Despite favorable technical factors and likely outperformance in spots over the summer months, a defensive posture, both in terms of duration and credit quality, remains warranted given anticipation of higher rates generally across the curve. Of course a full-blown trade war with lower economic growth could change this calculus …. For this reason, we continue to advocate...
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Quarterly Review


Dear Clients,

Please find attached Ramirez & Co.’s Quarterly Macroeconomic Outlook. In our report, we continue to monitor the US economy, global events and the Fed’s outlook on the economy and rates:

  • Almost a decade after the onset of the Great Contraction of 2007 – 2009, the Fed deserves an “honorable mention” for achieving its dual mandate of full employment and price stability – the cries of naysayers notwithstanding.
  • And now, the Fed is on to its next phase of gradually raising the federal funds rate to around 3% and passively contracting its balance sheet.
  • Market participants who are bullish on the economy think that 10Y Treasuries will move up to a fair-value yield of 4% as the term premium rises, while forecasters who are bearish on the economy think that the 10Y yield will move around an anchor of 3%, possibly because of still expanding foreign Central Bank balance sheets and strong global demand for safe assets.
  • Risks on the horizon entail rising US debt-to-GDP levels, financial market distress due to “trade wars” or “overpriced assets,” pressures on the short end of the yield curve primarily due to increased US Treasury funding needs and worries about a flat or an inverting yield curve signaling an impending recession.
  • The question remains whether the Fed will be able to smoothly navigate around the risks mentioned above. Consensus is emerging that the Fed’s balance sheet will not contract as sharply as initially expected.

    Members of our Financial Strategies Group, Niso Abuaf, Konstantin Semyonov and Duncan Sinclair, would be happy to discuss further any of the material with you.

    Full Quarterly Report