Morning Notes — Cyclical/Value

Rising expectations for large-scale fiscal stimulus and US vaccination progress are resulting in higher yields and curve steepening. Democrats sound like they’ll use the reconciliation process to pass a ‘fiscal rescue’ package close to $1.7T and the US is vaccinating more people per day than any other country (averaging 1.34M doses/day).  Ten-year Treasury yields bounced off our technical support range (0.98-1.00) last Wednesday and now at 1.101%.  The yield curve stayed steep during the two week-long counter-trend rally in bond prices (yields lower) but is now steepening further with the 5-year/30-year yield spread widening to 143.4bps.  Our bias to add cyclical/value equity exposure started with the 5/30 spread widened beyond 130bps. At the time, we were looking to add the best names in Financials, Industrials and Materials. But with the 5/30 spread now above 140bps, we clearly favor Financials over the other two sectors.