Treasuries sold off sharply on inflationary fears as economic data handily outperformed estimates and investors anticipate the Democrats $1.9 trillion economic stimulus package. Yields rose across the curve led by the 10yr which was +12.8 bps higher at 1.34% and the 30yr which increased +12.5 bps to end at 2.13%. Treasury index lost -0.75% on the week (-2.46% YTD) as all curves bear steepened.
Munis (finally) sold off and underperformed, succumbing to faltering Treasury prices despite a very light issuance calendar ($6.3. bil.) and still robust (+$1.96 bil. wk; +$15.09 bil. YTD) fund inflows. The S&P Main Muni Index lost -0.64% on the week (+0.25% YTD) as MMD was cut across the curve by 3-5 bps/day for three consecutive days, the first time since Aug, 2020. By the end of the week, the scale was cut +4 bps in 2yrs (0.12%), +15 bps in 5yrs (0.35%) and +18 bps in 10yrs (0.87%) through 30 yrs (1.52%). MMD 2s30s is the steepest since Nov, 2020 at 140 bps.
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:
• The disruption from COVID-19 is set to cause the steepest fall in global GDP since WWII. The Fed projects -6.5% growth in 2020, followed by 5.0% 3.5% in 2021 and 2022 • The Fed projects an unemployment rate of 9.3% by the end of 2020 vs its December projection of 3.5%, and expects the unemployment rate to decline to 6.5%, 5.5%, and 4.1% respectively in 2021, 2022, and in the longer run
• The Fed funds rate remains unchanged at 0%-0.25%, and will remain there through 2022, according to the median FOMC estimate
• Broad based fiscal stimuli will likely reach 20% of GDP. About half of it will be monetized by the Fed
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