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Defease With Ease | Thirty Capital Market Update: Risk Management Amid Steepening Yields

 

Key Takeaways:

 

  • Market Trends & Economic Data

    • Economic data remains important, but market movements are increasingly driven by policy developments and news from Washington.
    • Last week, we saw more steepening of the yield curve, with short-term rates holding steady, while 10-year swaps moved higher.
    • The Fed currently has approximately 77 basis points of rate cuts priced in for the remainder of the year.
    • Key data releases included softer-than-expected ADP employment numbers (77K vs. 140K expected) and nonfarm payrolls (151K vs. 160K expected).
  • Looking Ahead

    • The upcoming CPI report on Wednesday is a major focal point, with expectations for inflation to ease. However, there is speculation that actual figures may exceed forecasts.
    • University of Michigan sentiment data on Friday will be closely watched, given last month’s sharp decline.
    • Markets remain uncertain, with investors awaiting clarity on both economic trends and policy direction.
  • Strategic Insights: Managing Risk in an Uncertain Environment

    • A recent hedging transaction highlighted the challenges of predicting rate movements. A client opted to delay a swap execution, initially benefiting from falling rates but later facing volatility as rates rebounded. This underscores the importance of flexibility and risk management in hedging strategies.
    • Given ongoing rate uncertainty and geopolitical risks, our recommendation remains to implement hedges with shorter durations to maintain agility.
  • Policy & Market Implications

    • Potential government shutdown concerns continue to add uncertainty to markets, as negotiations over spending bills unfold in Washington.
    • Lending activity remains subdued, with banks tightening terms and leaning on existing relationships. However, certain asset classes, such as net lease properties, are seeing increased transaction activity YoY so far.

As always, proactive planning and flexibility remain critical in navigating today’s dynamic environment. If you’d like to discuss tailored hedging strategies or market insights, feel free to reach out to us.

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