Yields fall across the curve

Yields fall across the curve following strong Treasury auction

The $22B auction was met with strong demand for the second day in a row, pulling Treasury yields 1-6 basis points lower across the curve. Major equity indices were little changed on the day as markets monitored Congress’s impeachment proceedings – the S&P 500 rose 0.2% while the DJIA fell less than 0.1%.

Consumer Price Index climbs 0.4% in December after rising 0.2% the month before

Headline CPI increased by 0.4% in the month of December, matching economist forecasts, but only increased by 0.1% once energy costs were excluded. Inflation is a crucial part of the Fed’s dual mandate and expectations for higher inflation in 2021 has been one of the key drivers of the run up in rates over the past week.

Fed’s beige book details an increase in overall economic activity at the end of 2020

While job growth across most sectors remained muted, manufacturing activity improved for almost all regions. The Fed also cautioned that “although the prospect of Covid-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions.”

ECB President Christine Lagarde sticks to 3.9% euro zone GDP growth forecast for 2021 despite recent lockdowns

While the euro zone contracted 7.3% in 2020, she believes the growth forecasts are still “plausible” but might need to be revised if “after the end of March, those member states still need to have lockdown measures.” She also reiterated that she is open to extending the ECB’s bond-buying stimulus program past its March 2022 expiration date if needed.