Hawkish Fed and Strong Economic Data Fuel Late-Day Selloff  

Treasurys suffer late-day losses to overshadow morning rally. Swap rates and Treasury yields rose across the curve despite an early-day market rally. The selloff was spurred by Lael Brainard’s aggressive comments in which she stated that the Fed must be committed to fighting inflation and should avoid an early rate pullback. This hawkishness drove the 2-year yield to rise ~10 bps, ending the week at 4.27%. The 10-year yield rose just over 4 bps on the day, ending at 3.83% after falling as low as 3.68% earlier in the day.

Today’s economic data was inflationary, but consumers are more negative about the outlook. PCE increased 0.3% MoM, exceeding 0.1% expectations and a far cry from last month’s 0.1% decline. Core PCE increased 0.6% MoM compared to 0.1% last month. Elsewhere, University of Michigan consumer sentiment and expectations measures both declined, meaning that consumers are less optimistic about the road ahead.

Week ahead. The calendar will be packed with Fed speakers and data releases. Durable goods and new home sales data will come out on Tuesday, which will be followed by wholesale inventories on Wednesday and personal spending on Friday.