Rates Jump Higher Following Powell Comments

Rates jump higher as Powell reaffirms hawkish policy. Swap rates and Treasury yields jumped sharply higher today, undoing much of the recent rally and pushing the 10-year Treasury yield back towards 3%. Fed Chair Jerome Powell’s interview at a WSJ event was the main catalyst- Powell commenting that the central bank will continue to raise rates until it sees “clear and convincing evidence” inflation is normalizing.

Fed Funds futures price in 100bps of hikes through end of July. Powell’s comments today re-ignited a sell-off at the front end of the curve- Fed Funds futures now pricing in 100bps of rate hikes through the end of July. How far will the Fed go by the end of the year? At least to 3% if the market’s pricing turns out to be accurate. The Fed has previously indicated it considers the neutral rate to be between 2-3%, and Powell reaffirmed today that the central bank “won’t hesitate” to increase rates above neutral if inflation remains high.

Day ahead. Tomorrow will feature housing data in the form of housing starts and building permits announcements. The Treasury will auction off a new 20-year bond issuance at 1pm (the last 20y auction was met with strong demand which pulled rates 10+ bps lower intraday). The Fed’s Patrick Harker will speak at 4pm, rounding out the day.