Daily Market Color March 28, 2019Equities and Rates Rise Ahead of Inflation Data Treasury rally gives back some gains, yields rising 3-5 basis points. The much needed breather came despite a Q4 GDP figure that was revised lower, and a disappointing inflation level implied by the GDP price index. Tomorrow’s economic calendar is full of important inflation data- CPI figures coming out in the Eurozone while US markets will get January’s PCE data. PCE is the Fed’s preferred measure of inflation, any significant surprise higher or lower could mean continued volatility in rates markets. The 10 year Treasury yield ultimately ended the day 3 basis points higher at 2.395%. Dollar remains strong despite fall in yields. The strength has come as a surprise to market participants given that Treasury yields and the US dollar are typically highly correlated with one another. The strength likely comes from the relatively higher returns offered by US Treasurys and other USD denominated debt. With German and Japanese government debt sporting negative yields its unlikely the dollar will pull back anytime soon. US equities bounce back. Both the S&P 500 and the Dow Jones Industrial Average closed up 0.36%, led higher by materials and financials sectors. Equity volatility remains suppressed despite the increase in rates volatility- the VIX sits at 14.43 while the MOVE index (a measure of interest rate volatility) has spiked precipitously to 59.93.
