Targeted tariffs
March 24, 2025
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–Theme of the day is targeted tariffs which has helped stock futures build on last week’s bounce and undermined support for fixed income. News today includes PMIs, with Mfg expected 51.8 from 52.7. Services 51.0 from 51.0. Auctions of 2, 5 & 7 year notes start tomorrow.
–Friday featured little change in rates, with tens +1.7 to 4.248%. The two-yr yield was slightly lower at 3.946%. While 2/10 did NOT make a new high, SOFR calendars from reds back DID edge to new highs. SFRU5 +2.5 to 9617.5, U6 +2.0 to 9654, U7 +1 to 9643.5 and U8 unch’d at 9630.
–5/30 treasury spread ended at highest level since late September at 58.4. The high in September (61.4) was associated with the Fed’s first ease. This area of 58-60 bps is the halfway point of the pre-hike highs in 2021, 163, to the hiking lows in late 2022 and early 2023 of -46. The low in March 2023 occurred in conjunction with the regional banking crisis.
–Five-year at 4% reflects a soft economy with expectations of further Fed easing. Long-bond at 4.60 isn’t so much about inflation, but rather about possible increases in term premium as gov’t funding issues could become acute. Tax and tariff receipts could easily fall short of expectations while DOGE cuts don’t keep up with spending increases on things like unemployment benefits.
