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Daily Commentary

Commentary prepared by Alloya Investment Services, a division of the wholly owned CUSO of Alloya Corporate Federal Credit Union. Alloya Investment Services is a leading broker/dealer consultant to credit unions.

Tuesday, April 13, 2021 at 9:00 am ET
Commentary prepared by Tom Slefinger, SVP, Director of Institutional Fixed Income Sales, Registered Representative of ISI*, Alloya Investment Services

Market Indications

Historic Treasury Curves Graph 041221

Other Market Indicators

Market Indicators  
2s/5s Tsy Spread0.71+0.01
2s/10s Tsy Spread1.490.00
2s/30s Tsy Spread 2.160.00
DJIA-30 33,745.40-55.20
NASDAQ 13,850.00-50.19
S&P-500 4,127.99-0.81
Dollar Idx 92.22+0.08
CRB Idx 186.41-0.33

Daily Commentary

Recap – Bonds are having a rough time in the wake of some so-so U.S. auctions and ahead of today’s Consumer Price Index (CPI) data, with the yield on the 10-year Treasury yield popping two basis points to 1.677% and back approaching 1.7%. The long bond is 2.345%. On the front end, twos and fives are yielding 0.153% and 0.894%, respectively. The DXY Dollar Index is steady, at 92.2. Gold is off 0.4%, to $1,726 per ounce, while West Texas Intermediate (WTI) has a 1.1% bid, to $60.33 per barrel. Also worth noting, Bitcoin has rallied to an all-time high ahead of the April 14 Coinbase listing on the Nasdaq (with a valuation of around $100 billion) — soaring 4.4% to $62,633.

Graph from Bloomberg titled BitCoin showing a record high

For the equity market, the key test comes tomorrow as first quarter (Q1) earnings kicks off, led by the banks – JP Morgan, Goldman Sachs and Wells Fargo. Then followed by Bank of America, Citigroup and Morgan Stanley. The consensus goes into the reporting season with lofty expectations of +25% year-over-year EPS (earnings per share) growth (which would mark the strongest quarter since Q3 2018).

The U.S. budget deficit in the first half of the fiscal year (October-March) more than doubled from a year ago to $1.7 trillion. The large spike is primarily due to the stimulus checks after the passage of the American Rescue Plan (ARP) Act, which totaled $339 billion and included forgiveness of roughly $87 billion in Paycheck Protection Program (PPP) loans in March. In total, the government spent $453 billion on “income security” in March, with social security ($94 billion), commerce and housing credit ($81 billion), health ($71 billion), national defense ($70 billion) and other spending far in the rearview mirror. As shown below, the deficit as a percentage of GDP is at an unheard level of -19%.

The U.S. economy has become the product of “Big Government.” The prime source of vitality is the rapidly expanding fiscal deficit. So, even with all the reopenings, the economy would still be contracting if not for Uncle Sam’s willingness to borrow and spend at a rate that we last saw when we fought World War II. Even the editorial pages in the typically left-leaning New York Times see this for what it is: a government-fueled boom. But does money really grow on trees?

Graph from Bloomberg titled Federal Deficit as % of GDP

This just in. The U.S. is calling for a pause on the Johnson & Johnson vaccine after reports of blood clotting incidents and this has flipped futures into the red very quickly.

The consensus on the CPI this morning is for a 0.5% pop, taking the year-over-year trend up to 2.5% in March from 1.7% in February. For the core, the consensus is +0.2% month-over-month advance and enough to push the year-over-year pace up to 1.5% from 1.3%. Much of this upward jump is due to the base effect as the 2020 lockdowns skew the year-over-year data in the next few months as the pandemic led to a 0.3% CPI price decline in March 2020, a 0.7% drop in April (remember negative oil prices?) and a 0.1% May dip. But then we will see a huge peaking-out and rolling-over in June. The year-over-year trend through the summer months is going to plunge.

As we commence trading, beyond today’s inflation report, the Treasury market faces another key test in terms of the long bond auction. The U.S. will sell $24 billion of 30-year debt at 1:00 pm ET.

On the docket today, consumer prices are expected to have jumped 2.5% in March from a year earlier. Of course, the big question for markets is what happens from here on out as society continues to normalize.

April 12 - 16, 2021: The Week Ahead

Economic Calendar - 4/12/21 to 4/16/21

Future Fed Expectations

Source: Bloomberg

Future Fed Expectations

Expected Fed Funds Path Graph


Select Probabilities based on the Futures 
Probability of Fed Funds rate HIKE on April 28, 20212%
Probability of Fed Funds rate HIKE on June 16, 20214%

**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.

The information contained herein is prepared by ISI Registered Representatives for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Alloya Investment Services to discuss your specific situation and objectives.