Rates Reverse Higher By 20+ Bps

Rates reverse course as Fed officials re-emerge. Swap rates and Treasury yields reversed course violently after several Fed officials were perceived as hawkish by the market. Rates would ultimately climb by over 20bps on the day, one of the largest intraday moves this year, reversing out much of the last week’s rally. The 10-year Treasury yield would end the day back near 2.75% after touching 2.57% earlier this week.

Fed’s Evans and Mester push back on pivot. Much of the rally over the past week had been based on the expectation that the Fed would pivot away from its hawkish policy as inflation normalized and the economy decelerated. But the Fed’s Charles Evans and Loretta Mester pushed back on that narrative, saying that they would need to see “compelling evidence” of an inflation slowdown before they agreed to slow the pace of rate increases. The comments reinforce the notion that the Fed will be data-dependent as it evaluates its next rate decision in August. 

Day ahead. Fed watching will be back on the menu tomorrow as the Philly Fed President Patrick Harker makes public remarks. Outside of the Fed it’ll be a busy data day, with factory orders, durable goods orders and capital goods orders data. We’ll also get the latest look at the ISM’s services index for the month of July.