Daily Market Color

Treasurys Climb Higher with Rate Uncertainty, Mnuchin Commentary

Uncertainty over the US rate hiking schedule in addition to remarks made by Treasury Secretary Steve Mnuchin pushed Treasurys higher today, while equities traded within a tight range for a second consecutive session.  Yesterday’s release of the FOMC minutes from January’s meeting provided little indication as to the timing of the next increase in benchmark borrowing rates, leaving investors with a dovish sentiment after a “gradual” pace was again stressed.  Adding to the momentum this morning, Steve Mnuchin expanded upon his intention to explore the issuance of 50- and 100-year bonds by the US government, stating that while it is expected that rates rise in 2017, it is “really about where we are not relative to just today, but where we are relative to interest rates over a long period of time.”  The US would join the likes of Canada, France, and the U.K. as countries that have issued debt as far out as 100 years if implemented.  Today’s belly-led rally drove Treasury yields/swap rates 1-4 bps lower across the curve, with the yield on the 10-year note falling to 2.38%.  US stock indices were mixed throughout the session, as the DJIA (+0.17%) secured its 10th straight day of all-time highs while the S&P 500 finished near unchanged and the tech-heavy Nasdaq dropped 0.43%.  The US dollar fell for the second consecutive day following the FOMC minutes release, down 0.33% against a basket of major peers.  Crude oil reversed yesterday’s losses after US stockpiles reportedly rose less than expected last week, with a barrel of WTI crude increasing 1.5% to $54.40 in addition to Brent crude gaining 1.15% to $56.50/barrel.                              

A light day of economic releases was highlighted by the Labor Department’s initial jobless claims report this morning, which displayed a 6,000-claim weekly rise in the number of Americans applying for unemployment insurance for the first time.  For the week ended February 18th, the total number of claims rose to a seasonally adjusted 244,000, marginally above expectations of 240,000 and below the 300,000 threshold for the 103rd straight week.  The less volatile four-week moving average of claims fell 4,000 to 241,000, representing the lowest level since July 1973.  The number of continuing claims last week fell by 17,000 to 2.06 million.

In regulatory news, the prudential regulators (OCC, FDIC, Federal Reserve Board & Farm Credit Administration) issued notice today which harmonizes their guidance with the variation margin no action issued by the CFTC last week. They expect those institutions subject to the rule to prioritize their compliance procedures with those counterparties with which they have significant market and credit risk as soon as possible, but expect covered entities to be in full compliance with the margin regulations by September 1, 2017.  Please be reminded that banks with less than $10 billion in assets are still exempt from these new variation margin regulations.


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