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Today, the S&P 500 moved lower by about 75 basis points, an improvement from the sharp drop at the open. The market was initially digesting news of tariffs on Mexico, Canada, and China. However, by the end of the day, it appeared that tariffs on Mexico and Canada had been put on hold for at least 30 days, which the market welcomed. As a result, the S&P 500 rebounded from a low of about 5,925 to close at 5,995—a strong recovery from the initial selloff. The equal-weight RSP ETF also declined about 55 basis points.
The broader market sentiment regarding tariffs seems to view them as an inflationary event. This was evident in the bond market, where two-year yields moved higher while ten-year yields remained flat, leading to a flatter yield curve. The 10s-2s spread declined by three bps to 30 bps, while the 30s-3ms spread remained unchanged. Technically, not much has changed, but the market still appears to be in a consolidation phase, with the potential for the yield curve to steepen.
It is difficult to say what might trigger that steepening. The jobs report at the end of the week would typically be a significant catalyst, but other factors—such as tariffs—add complexity and uncertainty to the outlook. Nonetheless, today’s market reaction gives us insight into how investors perceive tariffs and their potential inflationary impact.
In the FX market, we saw significant volatility. The euro dropped sharply, testing the 1.02 support level before rebounding to around 1.035. The Canadian dollar also experienced significant swings, climbing above 1.47 before settling around 1.44. The Mexican peso saw similar volatility, reaching as high as 21.20 before returning to 20.30. For those who don’t follow FX closely, these are huge moves in currency markets.
The day’s other big news came at 3 PM with the Treasury’s quarterly refunding announcement. The Treasury announced plans to borrow $815 billion in privately held net marketable debt for the March quarter, assuming a cash balance of $850 billion. This figure was about $9 billion lower than the previous estimate from October. The Treasury expects to borrow just $123 billion for the June quarter, again assuming an $850 billion TGA balance.
However, whether these cash balance targets are met will depend on negotiations over the debt ceiling. The longer those negotiations drag on, the more likely the TGA will be depleted. The following key update comes Wednesday morning when the Treasury will provide details on issuance—whether it will concentrate more on short-term bills or extend issuance toward longer-duration debt. This is important because Scott Bessent was previously critical of excessive bill issuance. A shift toward longer-duration debt could put upward pressure on long-term interest rates, reinforcing the technical patterns that suggest further yield curve steepening.
That’s all for today. Have a great evening, and we’ll see you again tomorrow. Bye!
-Mike
Terms By ChatGPT
1. Basis Points (bps)
•A unit of measure for interest rates, bond yields, and financial percentages, where 1 basis point = 0.01% (e.g., a move from 2.00% to 2.25% is a 25-basis-point increase).
2. Equal-Weight RSP ETF
•The Invesco S&P 500 Equal Weight ETF (RSP) is an exchange-traded fund that tracks the S&P 500 but assigns equal weighting to each stock rather than weighting by market capitalization. This makes it a useful indicator of broader market performance beyond just large-cap stocks.
3. Yield Curve
•A graphical representation of interest rates on bonds of varying maturities, typically U.S. Treasuries. The shape of the curve (normal, flat, or inverted) signals market expectations about future interest rates and economic conditions.
4. TGA (Treasury General Account)
•The U.S. Treasury’s cash account at the Federal Reserve, used to manage daily government transactions, including tax receipts, debt issuance, and federal payments. Changes in the TGA impact banking system liquidity and monetary policy.
5. Bill Issuance vs. Duration Issuance
•Bill Issuance: The U.S. Treasury issues short-term debt securities (Treasury bills) with maturities under one year.
•Duration Issuance: Refers to issuing longer-term Treasury securities (notes and bonds) with maturities ranging from two years to 30 years. The mix of short- vs. long-term issuance affects interest rate expectations and yield curve dynamics.
6. FX Complex
•A term used to describe the entire foreign exchange (forex) market, including major and minor currency pairs, cross-currency trades, and macroeconomic factors influencing exchange rates.
7. Treasury Refunding Announcement
•A quarterly statement from the U.S. Treasury detailing its plans for issuing new debt to refinance maturing securities and fund government spending. It influences bond market expectations for supply and interest rates.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.