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Market Update

Tumultuous first quarter culminates with a wave of buoyant optimism

April 5, 2021


After enduring Q1 volatility, including the GameStop frenzy and a severe spike in energy prices during the Texas freeze, the quarter wrapped up on a high note with the freeing of the Ever Given, the S&P 500 ending over 4,000, and blockbuster manufacturing PMI and March jobs reports.

Economic outlook

With Covid-19 vaccine rollout reaching three million doses administered per day, the U.S. economy is gaining momentum as ~38% of adults have received at least one vaccine dose. Accelerated hiring in March added 916,000 jobs (which crushed the consensus expectation of +650,000) and resulted in the unemployment rate falling to 6.0%. The U.S. manufacturing activity in March also strongly beat expectations as the ISM Manufacturing PMI came in at 64.7 versus a forecast of 61.3, the index’s highest level since 1983.

Source: ISM Manufacturing Report on Business

This week, details of the proposed $2.3 trillion plan to upgrade infrastructure, create new jobs, and tackle climate change were revealed. The plan proposes to pay for the spending through an increase to the corporate tax rate from 21% to 28%.

Source: The White House and The Wall Street Journal

Interest Rates

The yields on benchmark 10-year treasury securities closed at 1.72% to end the week (after going as high as 1.765% earlier in the week during intraday trading) after the positive news on the economy and continued expectation of rising inflation. This continued the theme of long-term rates escalating throughout Q1 with the 10-year yields rising 81bps in the quarter and meaningfully steepening the yield curve.

For companies managing interest rate risk, analyzing capital structure, and seeking to minimize interest expense, the above market events re-enforced the importance of hedging strategy.

(Related insights: Read "Pre-issuance hedging in today's market," and register for the upcoming webinar, "Pre-issuance hedging: Practitioners share insights on why and how")

Foreign exchange

The U.S. dollar rebounded broadly in Q1, reversing the weakening trend it experienced in the second half of 2020. The U.S. Dollar Index (DXY) is up nearly 4% since the start of the year driven by strong economic recovery expectations and rising treasury yields. The Euro fell ~2% in March against the dollar, while CNY heads for its worst month against the dollar in over 1.5 years.

Source: The U.S. Federal Reserve

The Turkish Lira rapidly depreciated by 10% against the U.S. dollar in March, following news of removal of the governor of its central bank and his deputy by the Turkish president. This rapid movement of the exchange rate highlighted the need to manage currency risk carefully in these dynamic times.

(Related insight: Read "Operational FX hedging programs and the one leading practice you can’t afford to ignore")


Some welcome news on Thursday emerged when the OPEC+ oil alliance announced its decision to increase output gradually from May and release more barrels to the market to keep crude prices from rising further.

Q1 also brought a strong rally in grain prices, which jumpstarted the farm economy across the U.S. Midwest and lifted the prices to buy and rent farmlands aided by government stimulus and low interest rates.

Looking Ahead

As we start Q2 riding the optimism, some market trends to focus on are higher treasury yields, rising consumer demand, along with supply side constraints stoking inflation and a resurgent U.S. dollar with potential to weigh on corporate profits.


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

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