Daily Market Color

Potential Capital-Gains Tax Hike Pulls Rates Lower

Rates & stocks fall on potential Biden plan to hike capital-gain tax
Treasury yields/swap rates started the session higher after jobless claims hit a pandemic low but reversed course following reports of President Biden’s proposal to nearly double the capital-gains tax rate.  The ensuing flight to safety left yields 1-3 bps lower across the curve – the 10-year UST yield closed nearly 2 bps lower at 1.53%.  Equity indices also turned lower after the tax increase news, as major indices went on to post their biggest declines in 5-weeks – the S&P 500 and DJIA both fell 0.9% on the day.
Jobless claims fall to pandemic low
Initial claims totaled 547,000 last week, down from 586,000 the week prior.  While total claims remain above pre-pandemic levels, they have significantly declined from the 6.2 million peak reached in April 2020.
Existing home sales decline for a second month in a row
Sales of existing homes fell by 3.7% in March to a 6.01 million annual rate, the slowest pace since last August. Low home supply and rising mortgage rates stifled gains, though realtors report demand remains high. Despite the decline, sales were 12.3% higher than in March 2020.
ECB to increase its pace of bond buying
Earlier today, the ECB announced its plan to leave its policy unchanged and “expects purchases under the PEPP over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year.”  ECB President Chrstine Lagarde commented that “economic activity may have contracted again in the first quarter of this year,” so discussions around reducing stimulus are “simply premature.”

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