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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.

Wednesday, September 30, 2020 at 8:00 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 - Year Ago, 30 Days Ago, Current as of 09/28/20

Other Market Indicators

Market Indicators  
2s/5s Tsy Spread0.130.00
2s/10s Tsy Spread0.530.00
2s/30s Tsy Spread 1.30+0.01
DJIA-30 27,452.66-131.40
NASDAQ 11,085.25-32.27
S&P-500 3,335.47-16.13
Dollar Idx 94.01+0.12
CRB Idx 146.75-1.93

Daily Commentary

Recap – COVID concerns (NFL cases and NYC positivity rates), a lack of stimulus progression, and the uncertainty ahead of last night’s presidential debate weighed on stocks while sparking a safe haven bid under bonds. The Dow and S&P dropped 0.48% while the Nasdaq fell -0.29%. Bonds were bid very modestly on the day with the 10-year Treasury benchmark yield ending the trading at 0.650%. The long bond closed at 1.416%. Yields on the front end continued to drift lower with twos and fives ending at 0.125% and 0.356%, respectively. So, with the Fed on hold for years to come, volatility has all but disappeared in the Treasury market. As shown below, the MOVE Index (bond market volatility) is at an all-time record low.

Graph from Bloomberg titled MOVE Indes - Bond Market Volatility showing an All-Time Record Low

The first (and maybe (or hopefully) last) of three presidential debates happened last night. Any high school/college student on any debate team will tell you that was not a debate (a CBS News poll showed 69% were “annoyed” by the schoolyard fight between a 74-year old and a 77-year old). That was what I always loved about Ronald Reagan. He never once failed to take the high road and never lost his cool (or his sense of humor). Last night was a disgrace, debacle and definitely an embarrassment to the United States of America. Suffice it to say, the debate was so bad that circus workers say it’s offensive to call it a circus. Enough said.

Cartoon by Cagle showing presidential debate and suggesting a Mom that is fed up should be the next moderator.

Pink slips cometh. Walt Disney made one of the deepest workforce reductions of the COVID-19 era after it announced yesterday it was firing 28,000 workers. In the oil patch, Royal Dutch Shell said it will cut as many as 9,000 jobs. American Airlines has warned that it will furlough 19,000 employees and United is planning to cut 12,000 workers. Also, have a look at the following Wall Street Journal articles today: The Return of Indoor Dining in New York City Doesn’t Mean Business as Usual, U.S. Retail Store Closures Hit Record in First Half, as well as Manhattan Offices Are Nearly Empty, Threatening New York City’s Recovery.

In the wake of the horrific debate, there are few signs of progress on agreeing to a new stimulus package. House Speaker Nancy Pelosi has already asked Democrats to deliver a “strong” vote for the $2.2 trillion package from the previous $3.5 trillion. It is expected to come up for a vote as soon as today. I believe that passage of this bill is vital for the economy to avoid a sudden slowdown because consumers  can’t  draw on their prior stimulus checks in perpetuity and, as we will find out on Friday, the easiest part of the jobs recovery is in the rearview mirror — as the initial jobless claims data of the past three weeks attest.

The next three days will be filled with labor market data. Today we get the ADP Employment Report. Tomorrow initial claims, and then of course Friday is non-farm payrolls, which will give us a further sense of how much we're still recovering, and how much damage is going into the permanent category.

As we commence a new day of trading, investors are taking some risk off the table in the wake of last night’s acrimonious debate. Overnight, Japan’s Topix Index closed 1.9% lower – its biggest one-day drop since July. In Europe, the Stoxx 600 Index was modestly lower. In pre-market trade, S&P futures are pointing to a lower open.

Bond markets have a tiny bid, but for the most part, remain range bound. The yield on the 10-year Treasury note is at 0.65%, the low end of the extremely tight 0.628%-0.752% band since August 11. There really is no cause for yields to break out above this range, based on the global inflation (deflation?) readings.

The Day Ahead. In addition to the jobs data, the third reading of U.S. second quarter GDP is at 8:30 am ET. Pending home sales for August are due at 10:00 am ET. Minneapolis Fed President Neel Kashkari, Fed Governor Michelle Bowman and St. Louis Fed President James Bullard all speak later. Ex-FBI Director James Comey appears before the Senate Judiciary Committee.

Economic Calendar

September 28 - October 2, 2020: The Week Ahead

Economic Calendar 09/28/20-10/2/20

Future Fed Expectations

Source: Bloomberg

Future Fed Expectations 09/16/20-01/31/22 as of 09/28/20

Expected Fed Funds Path 9/1/20-1/1/21 as of 09/28/20


Select Probabilities based on the Futures 
Probability of Fed Funds rate CUT on November 5, 20203%
Probability of Fed Funds rate CUT on December 16, 20203%

**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.