Yields Rise Ahead of Powell Testimony

Swap rates and Treasury yields end higher on the day after early session rally. Treasury yields ended higher across the curve after declining in the morning, the 2-year yield rising 3bps to 4.89% after declining to 4.82% in the morning. The 10-year yield fared similarly, ending the session ~1bp higher after falling as low as 3.90%. Futures are still calling for a 25bps hike at the upcoming FOMC meeting, which is now just 2 weeks away. Elsewhere, equities remained little changed after climbing early in the session.

Banks are lifting rates aggressively to stem deposit outflows. US banks are fighting for deposits in an increasingly challenging environment as depositors pivot to higher-yield options like as Treasurys and money market funds. In focus are CDs, which have seen an especially pronounced increase. The average rate for a 1-year CD is 1.4%-1.5%, up from 0.25% last year. The deposit challenges are expected to limit bank margins; the median large-cap bank is expected to see NII growth slow to 11% this year, down from +22% last year.

Day ahead. Jerome Powell’s testimony to the House Financial Services Committee begins tomorrow at 10 AM. Wholesale inventories and economic optimism data will also come out at 10 AM, which will be followed by crude oil stock change at 4:30 PM.