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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, January 20, 2021 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 01/19/2021

Other Market Indicators

Market Indicators  
2s/5s Tsy Spread0.320.00
2s/10s Tsy Spread0.95+0.01
2s/30s Tsy Spread 1.700.00
DJIA-30 30,930.52+116.26
NASDAQ 13,197.18+198.68
S&P-500 3,798.91+30.66
Dollar Idx 90.51-0.26
CRB Idx 174.84-0.40

Daily Commentary

Recap – Yesterday was all about Janet Yellen. During her confirmation hearings, the Treasury Secretary nominee told Congressional lawmakers to “go big” on COVID relief, hinted at no major tax hikes in the short-term, and raised the idea of infrastructure spending. Tech stocks outperformed with the Nasdaq up 1.53% on the session. The Dow lagged (+0.38%). After selling off overnight, bonds were also bid. The benchmark 10-year Treasury yield closed at 1.089%. The dollar pushed lower and cryptos gained, led by a breakout by Ethereum to a new record high. What does that say about the U.S. dollar?

A graph from Bloomberg Finance L.P. showing a 250% increase in cryptos since 9/20.

Highest in 12 years. The Mortgage Bankers Association’s (MBA) purchasing index gained 2.7% in the week ended January 15 and is almost double where it was in early April. Historically-low mortgage rates, which have been below 3% since July for 30-year loans, have fueled the housing sector – with Americans looking for properties in the suburbs with extra room for remote work and school. Also of note, the average size of loans increased to $384,000, the second-highest level in data going back to 1990.

Grim milestone. The U.S. has lost nearly 3,000 people a day to the coronavirus since the start of the Christmas holidays. Over 100,000 Americans have succumbed to COVID-19 since mid-December. U.S. deaths have now topped 400,000, the worst toll in the world, even as cases fell in all regions. There could be many more months like this, and that’s if President-elect Joe Biden’s vaccine plan is a success. New York City Mayor Bill DeBlasio said the city will have to close vaccination sites after Thursday unless it receives a major resupply.

Old friend Janet Yellen reintroduced herself in Senate confirmation hearings with a strong and clear statement of intent: “The world has changed. In a very low interest-rate environment like we’re in, what we’re seeing is that even though the amount of debt relative to the economy has gone up, the interest burden hasn’t… Right now, with interest rates at historic lows, the smartest thing we can do is act big.” That said, the Biden administration will need 10 GOP senators to vote in favor of any stimulus program.

In a speech on the Senate floor yesterday, Senate Majority Leader Mitch McConnell directly accused President Donald Trump of feeding a mob lies in attempt to reverse election. McConnell stated, “This mob was fed lies. They were provoked by the President and other powerful people. And they tried to use fear and violence to stop a specific proceeding of the first branch of the federal government which they did not like.” Many believe that McConnell’s statement is a powerful signal that he will vote to convict Trump and that he has at least 17 other Republican senators who are willing to do the same.

At 12:00 pm ET, President-elect Joe Biden will be sworn in as the 46th President of the United States. It is expected that Biden will initiate at least 15 executive actions that will reverse some of President Trump’s polices on immigration and climate. The U.S. will rejoin the Paris climate agreement and the World Health Organization, stop construction of the wall on the Mexican border, revoke the permit for the Keystone XL pipeline and end restrictions on travel and immigration from predominantly Muslim countries. He will also introduce measures to reduce inequality and ease student debt burdens.

While it’s certainly a new day on the political front, markets are relatively muted. Overnight, the MSCI Asia Pacific Index added 0.6%. In Europe, the Stoxx 600 Index was 0.6% higher. S&P 500 futures pointed to a gain at the open. In the commodity space, West Texas Intermediate (WTI) was at $53.50 per barrel. Bonds are hanging in well with the yield on the 10-year Treasury just a smidge below 1.10% (even as Janet Yellen openly contemplates a 50-year auction — a clear sign this new administration plans to continue with the fiscal spigots turned completely on.

Economic Calendar

January 19 - 22, 2021: The Week Ahead

Economic Calendar 01/19/2021

Future Fed Expectations

Source: Bloomberg

Future Fed Expectations 01/19/2021

Expected Fed Funds Path 01/19/2021


Select Probabilities based on the Futures 
Probability of Fed Funds rate CUT on January 27, 20213%
Probability of Fed Funds rate CUT on March 17, 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.