Powell Addresses Higher Yields

Rates mixed after Powell preaches patience. Chair Powell indicated that the Fed is likely to hold rates steady at the upcoming FOMC meeting, though he kept the door open for future hikes. His comments sent short term rates significantly lower while the long end of the curve remained elevated, the steepening bringing the 2s10s inversion to just -17bps. The 10y UST yield nearly surpassed 5%, closing at 4.99% after an 8bp move higher. Elsewhere, major equity indices struggled on the day, as the S&P500, NASDAQ Composite, and DJIA fell 0.75%-0.96%. 

Chair Powell comments on rising bond yields, rate path. In his speech at the Economic Club of New York today, Fed Chair Powell said that policymakers feel higher long-term yields are helping to tighten financial conditions, following Dallas Fed President Logan’s similar remarks last week. Powell also addressed reasons for the rally; namely, he said that higher yields are mostly due to rising term premiums rather than expectations of the Fed hiking more. He suggested that the Fed is inclined to hold rates at the next meeting, but he still left the door open for another hike if economic growth proves resilient.  

Labor data highlights. Initial jobless claims fell to 198k the week ending October 14th, which was the lowest since early January. The level was lower than all estimates in a Bloomberg survey of economists, which provided yet another signal of a robust labor market and provided an upward pressure on rates. On the flip side, continuing claims, a proxy for the number of individuals who are receiving unemployment benefits in the US, rose to 1.73mm in the week that ended October 7th. The data was the highest since July and indicated that those who are losing their jobs are generally struggling to find new employment.