Medicare Agent News: Bonds Predict a Pause, and a Cut

Tuesday, April 4, 2023

Bonds Predict a Pause, and a Cut

By Lawrence C. Strauss | Thursday, March 23

Up and Down. Tech stocks led an early rally Thursday, which fizzled, only to see stocks recover yet again heading into the close.

The S&P 500 gained 0.3%, although nine of its 11 sectors finished the day in negative territory.

The Dow Jones Industrial Average was up 0.2%. The tech-laden Nasdaq Composite Index climbed 1%, though it had been higher during the session.

The S&P 500, which made strong gains earlier in the session, slipped into negative territory several times in afternoon trading but a late rally gave it a positive return for the day.

The Russell 2000 Index, which consists of small-cap issues, slid 0.4%.

Bank stocks, regional banks in particular, continued to weigh on the market. The SPDR S&P Regional Banking ETF finished the day down nearly 3%.

"Everyone is jittery on banks at the moment," Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, told Barron's in an email after the market's close.

Speaking before a U.S. House committee Thursday afternoon, Treasury Secretary Janet Yellen said in prepared remarks that strong actions have been taken to "ensure that Americans’ deposits are safe" and that "we would be prepared to take additional actions if warranted."

The market is also trying to digest the Federal Reserve's latest quarter-point rate hike, announced Wednesday. Although it appears that the Fed is close to wrapping up its tightening program, it's uncertain when the Fed could start to cut rates.

The futures market puts the odds of a May pause in rate hikes at 65%, up from 40% a week ago, according to the CME Fed Watch Tool.

Speaking at his press conference Wednesday, Fed Chairman Jerome Powell noted that Federal Open Market Committee "participants don't see rate cuts this year."

The Treasury market, however, doesn't believe it.

The two-year Treasury, which is closely tied to the terminal rate, or where the Fed Funds rate ultimately settles when the Fed finishes tightening, slid by nearly 17 basis points to close Thursday at a yield of 3.808%.

That yield has dropped precipitously by about 125 basis points since hitting its 52-week high of 5.064% on March 8, which is when the worries about Silicon Valley Bank first surfaced.

The 10-year Treasury's yield finished the day at 3.406%, down about nine basis points. It was 4.08% in early March.