Leader Week in Review - August 28th, 2015
Economic Data Releases:
Volatility Rollercoaster, Who Wants to Ride?
Last week, volatility was at the forefront as the equity slide continued. After a sharp drop on Monday, markets recovered somewhat. Treasury yields shrugged off equity market volatility and actually ended the week higher as an interest rate hike looms closer. After widening on Monday in conjunction with the equity market drop, Credit spreads tightened on the week. High Yield spreads actually ended 13 bps lower and Investment Grade spreads just 1 bp higher than the previous Friday level. While dramatic, we view the equity market drop as equities catching up with credit spreads (chart 1).
Typically during market routs Treasuries outperform other asset classes, but yields actually rose last week as the upcoming Fed rate hike is a bigger concern. In fact, Treasury market volatility has been elevated all year as investors price in the first hike (chart 2). Only recently has equity market volatility caught up. We think this elevated volatility will continue up until the first rate hike.
Upcoming Economic Data Releases: