Another Day, Another Rally

Bonds rise, equities mixed ahead of Powell comments. Treasury yields and swap rates shrugged off hawkish comments from the Fed to fall once more; the 2-year Treasury yield declined ~4bps to 4.21%, while the 10-year declined ~3bps to 3.53%. Year-to-date, the 10-year Treasury yield has now declined by 30+ basis points, setting up a very important CPI print later this week. Meanwhile, equities gave up the majority of their early session gains, the S&P and NASDAQ Composite ending the day down .08% and up .63%, respectively.

Fed speakers call for at least 5.00% Fed Funds rate. In his speech today, Fed President Bostic said that the Fed is committed to tackling high inflation, and that this resolve warrants raising rates to 5.00% – 5.25%. Bostic also noted that there could be some justification for slowing the pace of hikes to 25bps if CPI data (Thursday) shows cooling inflation. Fed President Daly noted that she expects the Fed to raise rates above 5.00%, but upcoming inflation data will help determine the final level. Fed Funds futures are currently pricing in a 25bp rate hike at the Fed’s 2/1 meeting, and only one additional 25bp hike through the end of 2023.

Day ahead. Fed Chairman Jerome Powell is set to make public comments at 9 AM ET. Business optimism and wholesale inventory data will be the other highlights, with the latter expected to remain flat with last month’s level of 1.0%.