First Republic News Sees Rates Fall

Rates fall ahead of next week’s FOMC decision. Swap rates and Treasury yields fell across the curve today, with news of First Republic’s likely takeover by the FDIC increasing fears surrounding the banking sector. First Republic Bank’s shares fell over 43% on the day. The news overshadowed hot personal income, personal spending, and headline PCE data, the 2-year yield falling to 4.01% and the 10-year yield declining ~10bps to 3.42%. Futures still suggest a ~85% chance of a 25bp hike at next week’s FOMC meeting, though any further hikes seem unlikely. 

Personal income, personal spending, and headline PCE come in above forecasts. This morning’s data offered the Fed more incentive to hike rates, with headline PCE, one of the Fed’s preferred measures of inflation, coming in above expectations at 4.2% (YoY) and last month’s level being revised higher by 0.1%. Personal income and personal spending also came in hot, as both were 0.1% higher than forecasted. The beats sent yields higher early in the session, the 2-year yield jumping as high as 4.10% in the immediate aftermath of the data. 

Week ahead. The Fed will announce their rate hike decision on Wednesday at 2 PM, which will be followed by a press conference at 2:30 PM. Nonfarm payrolls and unemployment figures will be released on Friday morning, with PMI, job openings, and balance of trade figures set for release earlier on in the week.