A rotation trade played out last week, with defensives rallying, tech steady, and cyclicals lower as the yield curve pivoted into an inversion. Small caps outperformed, as did most international benchmarks on gains in Europe and China.

Treasuries were in focus as the 2s10s yield curve saw the culmination of a 12-month flattening trend that ended with an inversion on Friday. Coming into the week 2s10s was positively sloped at +20bp, but it flattened by 28bp in 5 days to finish at -8bp (10y = 2.38% and 2y = 2.46%). An inverted yield curve has historically been a very reliable recession predictor, albeit one with a very long lead time (6m to 2y).

Credit spreads continued to tighten, helping US corporates recoup some of the YTD underperformance relative to Treasuries. IG spreads finished 5bp tighter and are now 28bp inside the YTD wides reached just prior to the March FOMC meeting, while high yield spreads have moved ~90bp tighter over the same period.

Most commodity prices fell last week as US crude benchmark West Texas Intermediate closed below $100/barrel for the first time in nearly 3 weeks. Natural gas bucked the trend and finished higher as officials continue to paint a dire picture of what would happen to the European economy without Russian gas imports.

Finally, there was a raft of economic news last week:

• 431k new nonfarm payrolls added and an unemployment rate of 3.6%
• Case-Shiller’s 20-city composite showed home price appreciation of 19.1% y/y
• The Conference Board’s Consumer Confidence Index was steady in March at 107.2
• Personal income grew at +0.5% in February, while personal spending was +0.2%