Market Watch | Baker Market Update

Baker Market Update

Our BMU is designed to keep you abreast of changing market conditions and the variables that drive those changes.

Baker Market Update – Week in Review

Released every Friday, BMU is a brief and informative newsletter that provides financial institutions a review of the week’s economic developments, tracks Federal Reserve policy, and provides an overview of the week’s expected data releases.

Below are the most recent Baker Market Update additions.

Sample View

Baker Market Update – wk220513

“No one here thinks that it will be easy” warned Federal Reserve Chairman Jerome Powell on Thursday as he discussed the notion of a soft landing when it comes to the US economy. He was confirmed in the Senate (80-19 vote) and will continue to lead the central bank’s campaign in fighting public enemy number one, inflation. In his comments, he reemphasized the Fed’s goal to bring back price stability while avoiding recession and keeping the labor market strong. This challenging task has been achieved rarely in prior cycles, and will be especially so after a negative 1.4% print on Q1 GDP after only two live meetings. Given current market readings, the Fed is expected to continue hiking rates by 50bps at the next two meetings (June and July).

What about the financial markets? No mention from Powell as they continue to take a beating this week and all of this year. Is the Fed Put really dead? As of Friday morning, the three major indices are lower with NASDAQ leading the drop down 3.75% for the week. For those keeping tally, the S&P is now off -16% YTD and NASDAQ -25%. Looking at the bond market, yields are lower across the curve from a week ago. UST 10YR yields are now trading around 2.92% (down from as an intraday high of 3.20% last week). On the short end, two-year yields continue to bounce around 2.50 to 2.75% as the market prices in the movement of the Fed Funds rate. On the consumer lending side, the 30yr mortgage continues to edge higher with a benchmark rate of 5.64% further stressing the impact of rising rates on housing affordability.

On Wednesday this week we saw the key release for prices from the BLS, the Consumer Price Index (CPI) report. April’s readings fell for the first time in eight months potentially beginning the start of a sustained decline. However, it appeared that most analyst expectations were for a further decline than actual potentially giving the Fed even more resolve to be hawkish. The headline reading which includes food and energy was 8.3% however economist was expecting a decline of 8.1%. The core figure (which strips food/energy) lowered as well to a 6.2%. The calculation’s base effects will continue to help however the month over month 0.6% is troubling indicating there could be signs of domestically generated inflation remaining strong. Also related to prices, PPI was released and it did show a moderation as well from 11.5% last month 11.0%

Next week brings a decent number of economic releases. On Monday the Empire State Manufacturing index will be released giving us insight on regional activity in the Northeast. Tuesday will be data heavy with releases on retail sales, industrial production and capacity utilization. Wednesday will see new building permits housing starts which give more insight to the impact of higher mortgage rates. Thursday will see the weekly jobless claims along with existing home sales.


Headline and Core CPI fell to 8.3% and 6.2% respectively in April. Energy prices posted the biggest drop while service and food inflation remain well above pre-pandemic levels. The drop in energy prices may be short lived as gasoline hit a record high of $4.40 in May 11th.

Source: Bloomberg Finance L.P.

Baker Market Update – wk220506

Here in the great plains, the month of May is traditionally considered “storm season” when the likelihood of tornados and severe weather is at its height. The first week of the month has also been volatile and stormy for financial markets. Indeed, it seems none have been spared. Stocks, bonds, gold… every asset class got hit hard at some point this week. To be sure, the trade-weighted dollar remains strong as an ox as it sits at 20-year highs, but assets denominated in the dollar (or any other currency for that matter) have gotten clocked. Remember, though, that nothing moves in a straight line. Volatility has been the word for the week as comments from the Fed chairman on Wednesday at first triggered a massive rally in both stocks and bonds, pushing the 10yr T-Note yield down below 2.90%, only to see a complete reversal of all that price action the next day, plus some. So what gives?

As the Fed strives to impress upon markets their seriousness in fighting inflation, the magnitude of their task is becoming more apparent. In their zest to get the fed funds rate to neutral (considered 2.5%-projected) or higher, they run the very real risk of choking the growth out of the economy and sending us into recession. The worst case would be a 1970’s-style period of “stagflation”. Historical reminder: As Fed Chairman, Paul Volker successfully crushed inflation during this period, but not without some pain. The level of the S&P 500 Index at the trough of the 1982 recession was about where it had been in 1976. Food for thought indeed. And this time around, there’s a gigantic Fed balance sheet that needs to be deflated. Storm season may be with us for a while.

The big data release for the week was this morning’s jobs report. On its face, the April employment report doesn’t rock anybody’s world… payrolls up 428K vs 380K projected, average hourly earnings YOY 5.5% vs 5.6% last month, and the UE rate remained at 3.6%. So at first glance we see slightly better payrolls growth and slightly less wage inflation than expected. There was an interesting downtick in labor force participation to 62.2% from 62.4% prior which feeds the narrative that the labor market continues to adjust to a post-pandemic world where labor supply is a major issue and the wide gulf between job openings and hires remains a head-scratcher. This keeps intact the fear that continuing (or resuming) upward pressure on wages will persist making the Fed’s job even more treacherous.

So, as we approach the weekend, we see the 10yr T-Note sitting at a lofty 3.10%. The range between 3.0 and 3.25% should serve as key yield resistance, but if we punch through 3.25%, it will bring us to the highest level in eleven years. We’ve also seen the yield curve steepen. The 2s / 10s yield spread is now out to 4bps, a notable difference from the inversion we had at the first of last month. More recession indicators (like the yield curve inversion) are starting to flash warning signs. The downdraft in financial markets may simply be adjusting to, and embracing the reality of an aggressive Fed. Bonds have led the way as the jump in yields has been rapid and substantial already. The wall clouds are forming, watch for rotation.

US Labor Force Participation: 2005 – Today
Prime-Age (solid line) and 55+ (dotted line)

Baker Market Update – wk220429

Stocks are weaker, the dollar is soaring, and bonds continue to range-trade as this week nears an end. The futures market is priced for a near 3% fed funds rate one year from now as policymakers stumble over themselves to telegraph how hawkish they are. Meanwhile, the Bureau of Economic Analysis reported yesterday that the US economy did not grow in the first quarter of this year, but rather it contracted by 1.4%. Many analysts shrugged off the report by pointing to the fact that most of the decline was attributable to net exports and the drawdown of inventories which had previously become bloated. Still, there is a reason that those components feed into the number and it is too early to suggest that these are temporary or one-off factors. The export sector in particular can be expected to suffer additional damage going forward from the strong dollar. Moreover, earnings of overseas operations for US corporations will be negatively impacted by the currency conversion if the greenback maintains its mojo.

There is an argument convincingly made by Dave Rosenberg of Rosenberg Research that we are much closer to recession than commonly thought, and that the Fed is likely to overplay their hand on tightening… something they historically and characteristically tend to do. An asset price bubble fueled by Fed ease and Treasury stimulus over the last two years has reached extremes that will be difficult to sustain much longer in the face of aggressive tightening. Fed Chairman Jerome Powell, singing the praises of his predecessor Paul Volcker, is determined to squash inflation rates that currently exceed 8.5%. That involves demand destruction at a time when real personal income is falling due to the sudden cessation of fiscal stimulus this year. As noted by Rosenberg, Fed tightening cycles are always followed by some sort of crisis. If not recession, a bubble burst of some sort may be on the menu. And if that happens, look for a safe-haven trade into the Treasury market.


The Fed is expected to hike its policy rate by 50 basis points and launch quantitative tightening at next week’s FOMC meeting. We will also see from the labor department how the job market performed in April. Most analysts expect a healthy 375,000 new payrolls were created. Next week will also see the release of manufacturing and trade data as well as construction spending and factory orders.

Baker Market Update – wk220422

Bond yields continued to march higher this week as Fed Chairman Jerome Powell reinforced expectations of aggressive tightening policy including a likely 50bps hike at the next FOMC meeting. Futures markets now project a fed funds rate of nearly 3.00% one year from now. Speaking on a panel with other central bankers, Powell said he sees it as appropriate to move more quickly and suggested that “front-end loading” the pace of rate hikes was a good idea. This follows earlier comments along the same lines from his colleagues on the FOMC. Treasury yields across the maturity spectrum drifted higher on the week as maturities from five years out traded above 3% at times during the week. As we approach the weekend, 10-year is trading around 2.90%, and the spread between 2-year and 10-year T-Notes hovered around 16bps.

The other component of the Fed’s tightening campaign is their intention to reduce the size of their balance sheet beginning next month. Formally announced plans call for a reduction of $95 billion a month in MBS and Treasury holdings. The effect on MBS is expected to be ambiguous depending on coupon and structure. The specific MBS-types held by the Fed will, of course, be affected, but others may perform quite well as the net supply of securities this year will be far less than originally forecast. In any case, much of what the Fed has telegraphed has already been priced-into markets.

Another point of focus for the Fed right now is the very tight US labor market. At 3.6%, the unemployment rate is near a 50-year low, and worker shortages in key sectors are putting upward pressure on wage inflation. Average hourly earnings YOY through March are clipping along at a pace of 6.7%, feeding concerns about a wage-price spiral and the risk that expectations of high and rising inflation could become embedded into decision-making of businesses and households. In his remarks, Powell referenced Paul Volker, his predecessor who squashed the double-digit inflation of the late-1970s with aggressive rate hikes and clarity in communication to the market, saying that Volker understood the critical importance of “dismantling the public’s belief that elevated inflation was an unfortunate, but immutable, fact of life.” The risk, as is well-known, is that this cure for the inflation problem involves some painful economic weakness. It’s a difficult balancing act indeed, but the Fed has no choice. The massive and unprecedented fiscal and monetary stimulus that was injected into the economy over the last two years, coupled with continuing supply chain sclerosis, has now caused a massive imbalance between aggregate supply and demand. And the Fed runs the greater risk of moving to slowly and allowing inflation to continue erosion of real wages, earnings, and returns on investment.

The economic data released this week included monthly numbers on housing starts and building permits, as well as existing home sales. All of these numbers came in stronger than expected (or less-weak than expected in the case of existing home sales). The “Philly Fed” manufacturing index was reported to be a touch lower than estimated, and Leading Economic Indicators was right on the screws at +0.3%, or 6.9% YOY, continuing a year-long downtrend. Next week we can look for fresh data on capital expenditures, consumer sentiment, and new home sales among other things.

US Federal Funds Futures Projections

Source: Bloomberg Finance, L.P.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220414

It was a week of steepening for the yield curve. Two- and five-year Treasury yields drifted lower approximately ten basis points (2.40% and 2.69%) while the 10-year dropped four basis points (2.74%) and the long bond (30yr 2.85%) drifted higher five basis points as of Thursday morning. With the recent drop in shorter term yields it could suggest that investors are beginning to doubt that the Fed will follow through on its Hawkish comments. The often talked about 10s vs 2s spread has increased to 34 basis points from previously reaching a low of negative eight basis points in early April. The recent movement in yields came after Vice-Chairwoman Lael Brainard’s comments last week about inflation being the most important risk to the US Economy. Bond market participants are busy analyzing the market impact of the Federal Reserve’s Balance sheet unwind which is underway decreasing the balance sheet no more than $95 billion per month going forward. There has also been discussion of selling securities to further help reduce the balance sheet. In the equity markets it was a bouncy week with the S&P 500 index looking to finish down about 1.3% from a week ago but still up more than 6.5% from the lows hit in early March this year.

Inflation continued to rise at the fastest pace in 40 years as we saw the March CPI and PPI reports this week. Headline CPI came in at 8.5% year over year and core (which strips out food and energy) was 6.5%. The headline figure was lead in large part by the 18.3% month over month jump in gasoline prices. The good news in the March report was that core price pressures finally appear to be moderating. After a series of half a percent increase over the last few months, it increased only 0.3%. There was a pop in the core services price readings but this was largely attributed the post-Omicron activities. As Fed officials continue to remain very hawkish, the March data won’t likely alter their plans to increase rates 50bps in their meeting next month. Most economist are expecting inflation to peak now and fall later this year.

On Thursday, retails sales increased 0.5% month over month. Similar to the inflation prints for March, retail sales were also influenced by the surge in gasoline prices. As workers continue to return to offices and travel there should be further boosts in the restaurant and bar sectors. However as real incomes continue to fall with higher inflation and higher interest rates consumption growth will be subdued. Also released today was the University of Michigan Consumer sentiment survey which saw a small rebound as the recent drop in gasoline prices provided some reprieve for consumers.

Next week’s economic calendar is rather light. We will see a slew of housing data including NAHB building permits, mortgage applications and existing home sales. There will also be a handful of Fed Speakers on the circuit before their blackout period which begins Saturday. Happy Easter to All!

Contributions to March CPI (Month over Month)

Breaking down headline CPI for March – energy prices contributed the majority of the increase for headline prices (1.2% month over month). While the Fed was slow to realize inflation the initial surge in inflation was not transitory they might also be too pessimistic about how quickly inflation could drop back.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information
The Baker Group Matt Harris, CFA

Matt Harris, CFA

Associate Partner
Director of Asset/Liability Management

mharris@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220408

One month ago, it cost the US Treasury 1.85% to borrow money for ten years. Now that cost is 2.69%, an 84bps difference. The increase for a two-year maturity has been even greater. The magnitude of this year’s rise in bond yields is profound no matter how you look at it. Even the sharp increase in 1994, an infamous year for the bond market, wasn’t quite as painful in as short a period of time. The good news is that for investment officers with money to spend, it’s a very welcome opportunity to put higher yields into the bond portfolio and boost earnings.

The first quarter chaos is largely due to the Fed’s scrambled attempt to get back in front of the market after failing woefully to acknowledge the sustainability of the current decades-high rates of inflation. Now they’re walking a tightrope and hoping to keep hold of the baby while ditching the bathwater. The minutes from the March FOMC meeting, as well as a parade of Fed officials, are reinforcing their commitment to aggressively tighter policy. Market sentiment as evidenced by the flat-to-inverted yield curve is flashing some early warning signs of recession at some point, but the timing is tricky. Futures markets at last check were calculating a 2.55% “implied” rate for Fed Funds by the end of the year, and the spread between 2yr and 10yr T-Note yields has ranged between -2bps and 20bps in recent sessions. A slight re-steepening of the curve that took place after release of the minutes can be viewed as quiet applause for the Fed’s newfound seriousness.

Among Fed speakers this week, James Bullard was again the alpha-hawk, bluntly stating that the Fed was behind in its mission to get an “exceptionally high” rate of inflation under control and suggesting that they’ll need to move “forthrightly” in order to get to the “right level” to deal with it. For him, that means a Fed Funds rate above 3%. Several policymakers favored a more aggressive interest rate hike in March (rather than the 25bps they did) to kick off a series of increases this year, but the FOMC held off due to uncertainty regarding the war in Ukraine. Fed Chair Powell said later that nothing would keep them from hiking rates by 50bps in coming meetings if that was deemed appropriate. Markets seem to be building-in that expectation.

Another key takeaway from the minutes is that they plan to begin balance sheet reduction or Quantitative Tightening (QT) as soon as the May meeting. That is welcome news to those of us concerned about market distortions and artificial asset price bubbles from a Fed balance sheet that now approaches $9 trillion. The QT process introduces potential complications for reserves targeting. They’ve created an asset/liability mismatch for themselves by buying assets further out on the maturity spectrum, funded by the creation of bank reserves. Reversing that won’t be easy. Stay tuned.

The data this week was relatively light: factory orders, durable goods, and manufacturing activity came in largely as expected. Next week promises to be more exciting as we’ll get data for inflation, retail sales, and consumer sentiment among other things. And next Friday will be a Good Friday indeed.

Federal Reserve Balance Sheet: 2005 – Today

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220401

Today’s Employment Report all but ensures the Federal Reserve will hike rates by 50bp in May for the first time in 22 years. No, that’s not an April Fool’s joke, just my opinion based on a few factors:

  1. Job growth is strong. The economy added 431,000 jobs in March and although that was less than expected, it continued a streak of 11 months in a row the economy has added at least 400K jobs, something we haven’t seen since the 1930’s.
  2. The labor market is tight. The Unemployment Rate fell to 3.6%, 0.1% more than expected and just 0.1% above the 50-year pre-pandemic low of 3.5%. If the Fed has a dual mandate of price stability and maximum employment, it’s hard to argue they haven’t achieved the latter (yes, I know what you might be thinking, there are a lot of people that have left the labor force… read on…)
  3. People are reentering the labor force at a rapid pace. The Labor Force Participation rate has jumped 0.7% in the last 5 months to 62.4% and is now just 1% below the pre-pandemic peak of 63.4%. By comparison, the participation rate was 61.7% in August of 2020 and was still at 61.7% in October of 2021 so the recent 5-month surge in participation is impressive compared to the prior 14 months that showed no growth.
  4. Wages are strong. Average hourly earnings rose 0.4% in March and are up 5.6% year-over-year, the fastest pace since May 2020 when the wage data were skewed by covid shutdowns that removed lower paid workers from the averages.
  5. This is the last Employment Report the Federal Reserve will see before the FOMC meets again on May 4th so the strength in jobs, tight labor market, rising participation and surging wages will heavily influence their decision for how much to raise rates.
  6. The next CPI report (April 12) will be the hottest in decades, most likely showing an annual CPI of 8-9%.

The final reason I believe the Fed will raise rates 50bp on May 4th is simply because the market has already priced in an aggressive tightening so why not? The 2-year Treasury yield is up an astonishing 173bp since January 1, more than tripling its yield to 2.46%. Mortgage rates have surged more than 150bp this year to 4.9% which is actually higher than the 4.82% peak in 2018 when the Fed Funds rate hit 2.5%. The damage to the economy and consumer spending from higher rates is already being felt so the Federal Reserve has nothing to lose by raising rates 50bp in May. Does that mean bond yields will continue to rise higher if they do? Not necessarily. The market has already priced in an aggressive tightening cycle so yields should only rise further if the market begins to believe the Fed will take the funds rate to 3% or higher… and that is not yet priced in.

Treasury Yield Curve Change – Year-To-Date

Source: Bloomberg, L.P.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information
The Baker Group's Ryan Hayhurst

Ryan W. Hayhurst

President
ryan@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220325

The equinox has come and gone and the end of the first quarter is near. And boy what a quarter it’s been. If lingering COVID effects were our only worry, life would be pretty good. But soaring inflation, now exacerbated by a commodities price surge courtesy of the war in Ukraine, has focused a spotlight on an aggressive shift in Fed policy and the consequent impact on markets. Policymakers lifted the fed funds rate by a quarter of a percent last week and announced the intention to reduce the size of their balance sheet sooner rather than later. The Fed Chairman subsequently emphasized the need to move “expeditiously” and act more aggressively going forward if necessary. As to market behavior, it’s been well-noted that the yield curve, particularly the maturity spectrum past two years, has shifted higher and flattened or inverted in response. It’s a moving target to be sure, but right now the sentiment that’s built into current bond yields reflects the expectation of an eventual fed funds rate of around 2.50% one year from now, a level many would view as a return to “neutral”. We’ll see if that actually plays out.

The Fed appears quite confident that the US economy can withstand a quick and decisive ratcheting-up in the cost of money to households and businesses. Indeed, that sudden upward jolt in the cost of borrowing will come right as the beneficial effects of massive fiscal stimulus fades as well. No more stimulus checks, enhanced unemployment benefits or PPP loans. And now, the cost of short-term borrowing is expected to go up tenfold. Demand destruction indeed. Not that it isn’t the right medicine for painful and persistent inflation, especially when there’s concern about inflationary psychology taking hold and driving economic behavior and decision-making. The cost of success in taming inflation, however, may well be recession, and that’s part of the explanation for the quickly flattening curve. If the economy weakens too much, the tightening process could be derailed early. As Atlanta Fed President Bostic said “The risks go both ways. Should demand falter in the face of economic uncertainty or removal of monetary policy accommodation, then the appropriate path may be shallower than currently projected”. Others on the FOMC, like James Bullard of the St. Louis Bank, are encouraging a “damn the torpedoes, full speed ahead” approach, arguing that the faster we get to restrictive policy, the better off we’ll be. All are hoping for the proverbial soft landing. Fingers are crossed.

The economic data this week showed slower new home sales and weaker capital goods orders versus expectations. Consumer sentiment was a touch weaker than estimates as well. The weekly labor market statistics, however, continued to shine. Continuing Jobless Claims are now at a multi-decade low, further evidence that the Fed is correct to focus on tightness in the labor market, and maintain their inflation-fighting diligence.

US Continuing Claims for Unemployment Insurance

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220318

This week March Madness arrived in every sense of the word. The ongoing war in Ukraine continues to send shockwaves through the world, including profound effects on financial, foreign exchange and commodities markets. In the midst of that angst, the Fed began a tightening campaign that’s been well telegraphed to markets, and is expected to be the most aggressive in a decade and a half at least. On Wednesday the Fed lifted the Funds rate by 25bps in the first of what is currently expected to be six or seven hikes over the next year, accompanied by a steady reduction of the Feds balance sheet which may begin as soon as this spring. The bond market, always discounting future events, has very quickly priced-in the anticipated tightening. So much so that the yield curve has flattened dramatically to the point where much of the curve is already flat as a pancake at yield levels undulating in a range of 2 – 2.15% as we approach the weekend. The closely-watched yield spread between 2s and 10s is now inside of 18bps. It seems the move communicated by the Fed’s guidance is well baked into the cake already.

Market prices on any given day are a reflection of the discounting future events, but it’s notable how quickly the bond market has adjusted to Fed policy expectations. The math of current yields tells us what the market expects at different points in the future… the so called “forward yield curve.” It’s a moving target to be sure, but today it projects that one year from now the 2yr yield will be 10-20 basis points higher than the 10yr… the sort of inversion that almost always precedes recession.

So, it seems that the market has already made a 1994-type of move… a massive jump in yields in anticipation of a process that the Fed has just barely begun. It leads some to question whether the Fed will actually be able to achieve what they propose. It may well be the case that they will get halfway through the process and find that economic weakness is coming on faster and more intensely than they had expected. Remember too that the gigantic multi-tiered fiscal stimulus that was pumped into household and corporate balance sheets for two-year has also ended. The one-two punch of aggressive and simultaneous monetary and fiscal policy tightening could choke the growth out of the economy and send it into recession, putting an end to rate hikes earlier than expected. All of this is worth considering, but markets cannot and will not ignore the ongoing threat of sustained inflation, particularly concern about the psychology of inflation becoming embedded into economic decision-making. This is why the Fed’s aggressive stance remains the right message and the right plan of action. From that standpoint Paul Volker would be proud. Still, if the inflationary psychology can be kept at bay, and the supply-side bottlenecks and transport issues resolved, the Fed may find that the demand destruction of six or seven rate hikes is more than the economy can stomach. Time will tell.

The economic data released this week was nothing so exciting as to sway the Fed from their task. Jobless claims continued to show improvement in the labor market, core producer prices were lower than expected on a year-over-year basis, the key measure of retail sales was unexpectedly weak, and existing home sales faded more than estimates. But all-told, no great shakes from the data. Next week we’ll see how new home sales, durable goods and capital expenditures are trending, along with news on consumer sentiment.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220311

Markets saw another week of volatility as the conflict in Ukraine continued without a peaceful resolution. A possible bit of good news coming out the conflict this morning as Russian President Vladmir Putin stated in regard to ongoing negotiations with Ukraine, “there are certain positive shifts, negotiators on our side tell me.” I imagine most will take his comments with a big grain of salt, but U.S. equity markets are considering this a step in the right direction with Dow Jones Futures up 300 points ahead of the market opening. Commodity prices couldn’t escape further volatility this week. Nickel prices more than doubled on Tuesday to top $100,000 per tonne before the London Metal Exchange was forced to step in and halt trading for the next few days. President Joe Biden announced Tuesday the U.S. will ban imports of Russian oil, which makes up roughly 8% of the total U.S. imports of oil and refined products. The price of oil hit $129 a barrel shortly after the announcement and has since come down to its current level of $106 a barrel. Treasuries markets saw plenty of volatility this week alongside equity markets as the 10-Year Treasury yield has snuck above 2% again and currently sits at 2.02%.

Yesterday brought more inflation data in the form of Headline Consumer Price Index (CPI) and Core CPI. Headline CPI rose 7.9% from a year ago, the highest level since January 1982 and Core CPI increased 6.4% from a year ago. Gasoline, groceries and shelter were the biggest contributors to the CPI gain. The conflict in Ukraine has only fed into price pressures as sanction against Russian have coincided with surging gasoline costs. The average cost of gasoline in the U.S. currently sits at $4.31.

Wednesday’s Job Opening and Labor Turnover Survey (JOLTS) report continued to show a tight labor market with job openings totaling 11.3 million. Additionally, a small decrease in quits, or workers voluntarily leaving their jobs. Quits declined to 4.25 million, a drop of 3.4% and the lowest number since October. Federal Reserve officials watch the JOLTS report for signs of labor slack. With the unemployment rate at 3.8%, policymakers feel the economy is near full employment.

All eyes are on the Fed next week as they will conclude their meetings Wednesday with an announcement on the Fed Funds Rate to follow. Last week, Chairman Powell stated he was “inclined to propose and support a 25-basis point rate hike.” at the March meeting and is “prepared to move more aggressively by raising the federal funds rate by more than 25 basis points” at one or more meetings if inflation does not come down later this year. Stay tuned and have a great weekend!

National Average Cost of Gallon of Gasoline – March 2021 to Present

Source: Bloomberg, L.P.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Dale Sheller

Senior Vice President
Financial Strategies Group
The Baker Group LP

dsheller@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220304

Markets have a lot to digest this week, but geopolitics is front and center. It’s hard to know exactly how the situation in Ukraine will play out, but for now it’s extremely dangerous and that fact is being reflected in financial markets behavior. The news last night that Russian invasion forces had attacked and seized Europe’s biggest nuclear power plant sent shockwaves throughout the globe, pushed money into safe haven assets like gold and US Treasuries, and triggered a massive surge in commodities prices. Catastrophe was avoided for now, but the event raises fears of what may come next in the conflict. Meanwhile, Fed Chairman Powell testified to both houses of Congress this week, largely reiterating his intention to stay on task and begin removing stimulus with a liftoff at the end of the month. Powell said he’s inclined to start with a 25bps hike and make several additional moves as the year progresses. In light of the geopolitical situation, he stressed that they would be “nimble” and base their decisions on data and conditions as they develop. Post-testimony, markets anticipate a total of five 25bps rate hikes this year, then possibly two more in 2023. As the price of crude oil soars well above $110 a barrel, consumer prices will remain elevated for longer than previously expected, but the Fed also needs to be mindful of the potential negative impact on the real economy. It’s a real tough situation for Powell and the FOMC. They cannot ignore inflation, but the steadily flattening yield curve is flashing a clear warning to the Fed that if they move too fast, they’ll derail economic growth and potentially risk a recession. Right now, the 10yr T-Note yield sits at 1.74% and the 2yr at 1.45%… a 29bps spread.

This morning the labor department released a stronger than expected jobs report showing a 678K gain in non-farm payrolls, upward revisions to prior months, a larger than expected drop in the unemployment rate to 3.8%, and signs of moderating wage inflation. All of this has to be welcome to the Fed, especially the wage data which showed the annual rate dropping to 5.1% from 5.7%. The composition of payrolls gains was broad based, so most of the deceleration appears to reflect a genuine easing of pay pressures. The labor force participation rate ticked up a bit higher than expected, and survey data suggests that labor shortages may be levelling off. All good news for the Fed. Earlier in the week we got a stream of data including ISM manufacturing, durable goods orders, and capital expenditures, all of which came in largely as expected. Next week we’ll see the latest release of consumer price inflation and consumer sentiment data among other things. The NCAA basketball tournament won’t start for a couple of weeks. Meanwhile, March Madness simply describes a certain Russian dictator.

Crude Oil Futures: 2021 – Today

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220225

Financial markets were roiled this week by the Russian invasion of Ukraine. Rather than a limited incursion in the eastern region of the country a broad-based invasion was launched into all of Ukraine, triggering volatile selloffs in risk assets and forcing money into safe havens like US Treasuries and gold. Energy and commodity markets soared, with oil prices briefly surpassing $100 a barrel Thursday. As we approach the weekend Russian troops were threatening the capital, Kyiv.

Treasury prices jumped sharply on the flight to quality, bringing the 10yr T-Note’s intraday yield down to 1.84%, 22bps below the recent high of 2.06% established last week. It has subsequently traded back up toward 2%. Volatility is the word of the week, and there are now legitimate questions about whether and to what degree the Ukrainian mess might change the Fed’s calculus regarding rate hikes and policy stance. Some policymakers like Christopher Waller believe the Fed should remain focused on the data stream rather than geopolitics. He has no problem with a 50bps hike in March if the inflation readings continue to come in hot. Cleveland Fed President Mester acknowledged that the unfolding situation in Ukraine will be a consideration in determining the pace at which to remove accommodation, saying “time will tell whether Ukraine changes the outlook for policy”. But Atlanta bank President Bostic suggested that “we continue with our liftoff plan” if numbers come in close to what’s expected. The inflation situation is compounded by the war-related jump in energy costs which could push headline inflation even higher than its already-elevated levels. Expect the Fed to stay the course and start normalizing policy in March as planned… but a 50bps move is probably less likely now.

The yield curve has flattened even further in the wake of Ukraine. The yield spread between 2s and 10s is now inside of 38bps, the lowest level since April 2020 when the COVID pandemic was just getting started. Persistent curve flattening will be on the Fed’s radar as an indicator of slower growth coming down the pipe and raising the specter of stagflation if price increases don’t settle down.

Lost in the shuffle of war news was the drumbeat of positive economic data. The Case Shiller home price index rose 18.5% YoY, the purchasing manager’s index for both manufacturing and services beat expectations along with consumer confidence, personal spending, durable goods, and capital expenditures. The Fed’s preferred measure of inflation came in at 5.2% as expected. That level is the highest it’s been since Ronald Reagan was President and Vladimir Putin was a young KGB agent in training.

US 10yr vs 2yr T-Note Yield Spread

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220218

The recent surge in bond yields took a breather this week as the risk of the largest military conflict in Europe since World War II overshowed soaring inflation and the potential for a more aggressive Federal Reserve tightening cycle in 2022. The 2-year Treasury yield peaked at 1.58% on Tuesday, up 137bp since Sep 2021, as the BLS reported producer prices spiked 1% in January alone and are up 9.7% over the last year. That combined with last week’s hotter than expected CPI report that showed consumer prices rising at a 40yr high of 7.5% had traders anticipating the Fed may have to raise rates at every single FOMC meeting this year, including the possibility of a 50bp hike in March. But the threat of a Russian invasion of Ukraine and the potential havoc that could unleash on energies markets and the world economy were enough to remind markets that the Fed may not be able to raise rates as much of they may want. By the end of the week, 2-30yr yields had fallen 10bp or more from Tuesday’s high.

Despite the late week rally in Treasuries, it is clear investors need to prepare for an aggressive Federal Reserve tightening cycle in 2022. It is almost a certainty the Fed will raise rates in March, but the markets are split on whether it will be a 25bp or 50bp. St. Louis Fed President James Bullard made headlines this week when he said he wanted the Fed to raise rates 100bp at the next three meetings between now and July 1, which would imply at least one of the hikes was 50bp. But Bullard remains the most hawkish Fed president and most other FOMC members have expressed a desire for a more measured approach that would imply 25 rate hikes at each meeting. The pace of rate hikes will almost certainly depend on whether and to what extent inflation falls and/or growth slows. In my opinion, there are 3 possible paths for rate hikes depending on the path of inflation/growth:

  1. Inflation continues at its current elevated pace: Fed raises rates 25bp at each meeting until inflation falls
  2. Inflation accelerates higher: Fed raises rates at every meeting with some hikes 50bp
  3. Inflation falls and/or growth slows sharply: Fed raises rates at next 3-4 meeting and then pauses to reassess

This is only my expectation for possible paths the Fed may follow, but I think it’s clear the Fed will be “data dependent” and they will we focused on tightening monetary policy until inflation falls. February CPI will be reported the week before the FOMC’s next meeting (Mar 15-16) and I believe that report could very well determine whether that first rates hike is 25bp or 50bp.

Treasury Yields & Fed Funds Rate Since 2002

Source: Bloomberg, L.P.

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information
The Baker Group's Ryan Hayhurst

Ryan W. Hayhurst

President
ryan@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220211

The Fed has always said they will be data driven. If they needed more ammunition before they decide to raise interest rates for the first time since December 2018, they got it this week. Yesterday, the headline consumer price index increased 7.5% compared with a year ago. Core CPI, which strips out volatile food and energy costs, increased 6%, compared with the estimate of 5.9%. Core inflation rose at its fastest level since August 1982. The monthly CPI rates also came in higher than expected with headline and core CPI both rising 0.6%, compared with estimates for a 0.4% increase by both measurements.

What items are driving up the CPI? That’s a great question… I’m glad you asked! Fuel oil rose 9.5% month over month as part of a 46.5% year over year increase. Energy costs overall were up 0.9% for the month and 27% on the year. Vehicle costs, which have been a big inflation contribution since the spring of 2021, were flat for new cars and up 1.5% for used cars and trucks in January. The lack of new car inventory due to a microchip shorter is generally to blame for the higher auto prices. Shelter costs, which make up one-third of the total CPI number, increased 0.3% on the month, which is the smallest gain since August 2021, but still up 4.4% over the past year.

Okay… that was a lot of number and percentages. Let’s talk about the Fed. Most are no longer debating when the Fed will raise rates, but rather by how much at the upcoming March meeting. The Fed hasn’t increased interest rates by 50bps in one meeting since 2000. In the last two weeks, some Fed officials have tried to play down expectations of a 50bp move. This week, Cleveland Fed President Loretta Mester laid out a plan where the Fed starts with quarter-point rate hikes, with more aggressive moves on the table in the second half of the year if the high inflation readings remain. Inflation is a function of supply and demand. It is hard to envision how Fed rate hikes will magically heal or improve the damaged supply chains, but the Feds rates hikes should have some impact on demand at some point in the future to cool off inflation. Stay tuned as the Fed will meet next month starting on March 15th and concluding the following day.

Next week’s economic calendar includes some key retail sales data as well as industrial production and capacity utilization. Additionally, some housing related data will come by the way of new housing starts and existing home sales.

Lastly, I’ll leave everyone with some fun Super Bowl facts in time for Super Bowl Sunday. $6,214: The average cost of a ticket to the past five Super Bowls. $6.5 million: The cost of a 30-second Super Bowl ad this year. It will be the 2nd time a team will play the Super Bowl in their home stadium. The last time this happened? Just last year with the Tampa Bay Buccaneers! Enjoy the game and have a great weekend!

Consumer Price Index, Percent Change from a Year Ago (1980 to Present)

Source: Bureau of Labor Statistics

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Dale Sheller

Senior Vice President
Financial Strategies Group
The Baker Group LP

dsheller@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Baker Market Update – wk220204

If you thought the transition into 2022 was volatile for the bond market, hold on to your hat because the hits keep coming. The sustained upside inflation data from supply shocks, which was well noted last month by the newly aggressive Fed, has now been bolstered by a stunning upside surprise from the January employment report. The US economy created 467K new non-farm payrolls when the consensus estimate was for just 125K. Participation in the labor force jumped unexpectedly by three-tenths of a percent, so the unemployment rate ticked back up to 4.0%… as we now have a larger denominator (size of the labor force) in the equation. This is all good news for the jobs market. Notably, average hourly earnings popped up a healthy annualized rate of 5.7% which is a .8% higher than the prior month. There were also some stunning revisions to prior month levels of job creation. The outsized magnitude of those revisions (November job growth, for example, was revised from 249K to 647K) was partly a function of the annual baseline and benchmark revisions done by the Bureau of Labor Statistics. This year, the benchmark revisions were substantial due to pandemic related noise. Either way, the jobs report was an upside stunner which gives the Fed a green light for tapering, rate hikes, and quantitative tightening as they see fit. It also fuels talk of a 50bps move to put an exclamation point on the Fed’s seriousness. But let’s not get carried away. This is one report pulled from a statistical morass of data with huge COVID-related revisions.

The yield on the 10yr T-Note is now above 1.90% for the first time since the pre-pandemic days of 2019. The 2yr yield is now around 1.30%, pushing the 2s / 10s spread to 60bps… almost 100bps tighter than last March. This flattening of the yield curve will be closely watched by the Fed. If it continues to flatten and/or starts to threaten inversion later this year, that could give the Fed pause as it typically portends economic weakness coming down the pipe. Right now, the forward yield curve is calculating that one year from today we’ll see a 2yr Treasury yield of 1.87% and a 10yr yield of 2.11%. But that’s just based on the math of today’s price action. It can and will change with every new development.

To be sure, there was other economic data this week. The ISM manufacturing report came in mostly as expected but the price component was a little hot. The JOLTS labor turnover report continued the pandemic trend of more openings vs fewer hires, and durable goods and capital expenditures were largely as expected. A healthy increase in labor force productivity kept unit labor costs in check… which is good news on the inflation front. Next week we’ll see a heavy calendar of Treasury auctions along with data on retail sales, housing and producer prices among other things. Hopefully the frozen parts of the country will thaw out, and Team USA will do us proud in the Olympics.

US 10yr Treasury Yield: Jan 28 – Today

The Baker Group is one of the nation’s largest independently owned securities firms specializing in investment portfolio management for community financial institutions.

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizes software and products developed by Baker’s Software Solutions* combined with the firm’s investment experience and advice.

*The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

For More Information

Jeffrey F. Caughron

Chairman of the Board
The Baker Group LP

jcaughron@GoBaker.com
800.937.2257

INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

Disclaimer: INTENDED FOR USE BY INSTITUTIONAL INVESTORS ONLY. Any data provided herein is for informational purposes only and is intended solely for the private use of the reader. Although information contained herein is believed to be from reliable sources, The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. The instruments and strategies discussed here may fluctuate in price or value and may not be suitable for all investors; any doubt should be discussed with a Baker representative. Past performance is not indicative of future results. Changes in rates may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.