Rise in Oil Prices Spurs Another Jump in Rates

Rates extend multiyear highs. Swap rates and UST yields continued to climb to decade-plus highs, with today’s one-year high in crude oil driving further inflation fears. The long end of the curve saw most of the action, as the 10-year yield jumped 7bps to 4.61% while the 2-year rose 1bp to 5.14%. Meanwhile, the 2s10s inversion nearly tightened to -50bps by the close.

The U.S. government shutdown could significantly tighten the U.S. economy. These effects would start mildly but would worsen the longer the holdout persists. The risks involve losing or delaying revenue of up to $1.9 billion, as millions of workers would not receive pay throughout the shutdown. Addressing the potential implications, 2023 policy voter Kashkari commented, “If the U.S. economy experiences these downside scenarios, we may then need to use monetary policy less to bring inflation back down to 2% because the government shutdown or the auto strike could slow down the economy for us.”

Data-heavy days ahead. Tomorrow’s slate features GDP and PCE, both of which are expected to remain little-changed from June. Annualized QoQ GDP is expected to rise slightly from 2.1% to 2.2%, while core QoQ PCE should remain flat at 3.7%. Friday’s schedule will feature numerous PCE figures and personal spending and income data.