Daily Market Color

March PPI Reading Pushes Treasury Yields Higher

Rates rise following surprise PPI reading
March’s headline PPI figure beat estimates, fueling market expectations of high inflation.  Treasury yields and swap rates bounced back after falling for several days, closing 1-5 bps higher across the curve – the 10-year closed nearly 4 bps higher at 1.65%.  Equity indices ended the week in the green – the S&P 500 and DJIA rose 0.7% and 0.9%, respectively, to closed at all-time highs.
CRE struggling to find momentum
With one week left in first quarter reporting, both large and small banks’ commercial portfolios continue to struggle to gain traction in 2021. On an YTD annualized basis, large banks are seeing their C&I and CRE portfolios contract at 9.35% and 4.58%, respectively, while total loans have contracted 4.68% on an YTD annualized basis. Small banks have faired relatively better than their large peers. The extension of PPP has allowed small banks to grow their C&I portfolios at 8.75% on an YTD annualized basis. CRE lending at small banks has picked up slightly in recent weeks with YTD annualized growth increasing to 1.81% in the latest release. Deposits continue to grow exponentially at both large and small banks with YTD annualized growth at 12.0% and 19.42%, respectively.
US PPI rose 1% in March, following a 0.5% increase the month prior
In the past 12 months up to March, PPI jumped 4.2% — the largest Y/Y gain since 2011.  Core PPI, which excludes food and energy, rose 0.7% in March and 3.1% Y/Y.  Both total and core PPI have drifted above the Fed’s 2% inflation threshold, though the central bank officials believe readings like these are transitory and are not reflective of trye price pressures.  Markets will watch to see if Tuesday’s March CPI report shows a similar pattern.

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