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Markets Calm as Rates rise Slightly

Financial markets were relatively calm this week, with bond yields rising one to two bps as volatility continued to recede heading into the Memorial Day weekend. The week's economic data continued to evidence the broad economic pullback caused by efforts to contain the virus, even as most U.S. states made initial efforts to reopen. Housing starts declined 30% from March to April while building permits declined by just 21%.

The labor market's weakness continued as another 2.4mm American filed initial claims for unemployment insurance. Another 25mm American remained on the unemployment rolls, as continuing claims for jobless benefits rose by 2.5mm from last week's 22.55mm level. The Federal Reserve has continued to provide economic stimulus, buying vast quantities of financial assets.

The Fed's balance sheet has exploded from $4.2 Trilion at the beginning of the year to $7.0 Trillion now, including >$380 Billion in mortgage-backed securities purchased this month alone.

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