Public Finance
03/22/2024 Market Commentary
March 22, 2024
The Federal Reserve voted to hold the federal funds target rate between 5.25% and 5.50% this week (as expected) and maintained their forecast for three quarter-point rate cuts this year. Fed officials have become increasingly optimistic about the prospect of a “soft landing” for the economy. The economy remains stronger than anticipated and that is reflected in the Fed’s upwardly revised economic growth forecasts for 2024, 2025, and 2026. Fed officials also revised downward their forecast for unemployment, acknowledging the continued strength of the labor market.
Fed Chairman Powell explained the risks of the Fed’s “soft landing” strategy during the post meeting news conference. The Fed is actively trying to avoid a situation where interest rates are cut prematurely, which could risk a resurgence in inflation. At the same time, the Fed does not want to cut interest rates too late, causing unnecessary harm to the economy. Given these risks, the Fed Chairman avoided providing any hints as to when rate cuts may start. However, most investors currently expect the Fed to begin cutting interest rates in June.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| March 14, 2024 | 2.45% | 3.62% |
| March 21, 2024 | 2.47% | 3.65% |
| Change (bps) | +2 | +3 |
The 10 and 30-year Treasury held relatively steady this week, while the short end of the curve rallied with yields dropping by as much as 10 basis points. In contrast, Municipals were weaker on the short end, with MMD rising by as much 7 basis points. This has lead Muni-to-UST ratios to rise slightly from their 3-year lows. Despite these rate movements on the short end, demand for municipal bonds remains strong and continues to outpace supply.
Treasury yields over the past week:
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| March 14, 2024 | 4.29% | 4.44% |
| March 21, 2024 | 4.27% | 4.44% |
| Change (bps) | -2 | +0 |
Written by Michael Garcia, Associate, Oppenheimer & Co. Inc., Public Finance.
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