Daily Market Color

Financial Markets Mixed to Close Out Week


Flattening Out

While bond markets have been fixated on the 10-year Treasury note yield hovering near the 3.00% psychologically-significant level, the spread between short and long term rates has steadily moved towards historically tight levels.  The yield curve is currently the flattest it has been since 2007, with the 2s10s spread currently inside 43 basis points and 5s30s spread narrowing to 27 basis points.  Of concern to financial markets is the potential for a flat yield curve evolving into an inverted yield curve — often a harbinger of an economic downturn.  However, it remains to be seen whether an inverted yield curve in the current environment would actually lead to a recession, as the current labor market is exceptionally robust and consumer spending/optimism is as strong as its been in the past decade.   



Relatively Quiet Friday

Major US stock indices were mixed in the final trading session of the week.  The DJIA was the top performer, up 0.4% on the day, while the S&P 500 closed 0.2% higher and the tech-heavy NASDAQ posted a slight loss (-0.05%).  US Treasurys held within a tight range throughout the day, with yields/swap rates inching ~1-2bps higher across the curve as the 10-year note yield finished near 2.97%.  The US dollar extended yesterday’s losses, falling 0.15% against major currencies.  Cryptocurrencies didn’t fare well for the second time this week.  Bitcoin plunged 6.3% during the trading session, driven by the news that authorities in South Korea had raided the nation’s largest crypto-exchange over concerns of fraud.



What’s New with NAFTA?

A renegotiation of the North American Free Trade Agreement remains one of several administration initiatives Trump has yet to be able to gain real progress on.  This week it was reported that trade officials from the US, Canada and Mexico had made significant strides towards a deal on one of the key elements of the accord – automobiles.  Specifically, details surrounding the percentage of autos to be traded within the bloc duty-free are being negotiated.  House Speaker Paul Ryan has set May 17th as the deadline for submission to Congress of at least a “skinny deal” in order qualify for the existing fast track legislation.  An expedited agreement is also a priority for Congress given the upcoming midterm elections in November.  Similarly, officials in Mexico would prefer to get a new measure passed as soon as possible, with the nation set to hold its Presidential election this July.   


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