Daily Market Color

Rates Break Sell-off Streak

Continued debt ceiling woes spur risk-off sentiment. Swap rates and Treasury yields generally declined today, with yet another roadblock in debt-ceiling discussions spurring market concerns and an afternoon bond rally. The rally saw the 2-year and 10-year yields close well below their session highs at 4.32% and 3.69%, respectively. Debt-ceiling discussions continued Tuesday, but signs of progress were lacking, with House Majority Leader Steve Scalise going as far as to question the validity of the “X-date” offered by Treasury Secretary Yellen. Equities fell as a result, the NASDAQ Composite falling 1.26% while the S&P 500 declined 1.12%

Loan-to-deposit ratio trends. Loan-to-deposit ratios still haven’t recovered since the pre-pandemic level of 72.4%, coming in at 65.2% for the first quarter of 2023. As a commonly used statistic by investors to assess liquidity, it doesn’t go unnoticed that median loan growth for banks below $10 billion continued to slow in the first quarter. JPMorgan had a loan-to-deposit ratio of 49.3% in the first quarter, citing inflows of “somewhat flighty deposits” as dozens of banks logged deposit outflows in excess of 5%. JPMorgan has said they are not tightening lending standards aggressively, while smaller banks with the largest year-over-year increase in loan deposit ratios have become “very selective” in lending.

Day ahead. Fed minutes at 2 PM will highlight a busy session, with voter Christopher Waller set to make separate comments just after noon. The day will begin with mortgage data at 7 AM.

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