Rates Close Out the Week on a High Note

Swap rates and Treasury yields climb higher to end volatile week. Long-term swap rates and Treasury yields climbed 3 basis points on the day to close out a choppy week ahead of next Wednesday’s anticipated FOMC meeting. While the 10-year Treasury yield remains a full 30 basis points off the highs established in late March, the 5-year Treasury yield is quickly approaching its YTD highs and now sits a mere 8 bps away at 0.86%. US equities continued to pull back from YTD highs, the S&P 500 declining 0.91% on the day- the 8^th negative session out of the last 10 days.

All eyes will be on the Fed when the FOMC meeting kicks off next Wednesday. Investors will be looking for any signs of a slowdown to the Fed’s monthly $120B bond purchase program. Many Fed members, including FOMC voters, have suggested that a taper could be coming in the near future as the labor market has made substantial progress over the summer months. The August jobs report temporarily threw cold water on the strong jobs data after missing expectations by a large margin (actual jobs gained 235,000 vs. expectations of 720,000). However, even dovish voting members spoke to the miss not being detrimental to the Fed’s employment goals. In a recent interview, Michelle Bowman, one of the more dovish Fed members, commented, “Even though some of the recent data may have been less strong…We are very close to our goal of maximum employment..”

Consumer sentiment stabilized in September but still remains at a decade low. The University of Michigan’s consumer sentiment index increased slightly in September to a reading of 71, up from August’s 70.3. The report noted that consumers are feeling worse about the economy during September compared to any point during the COVID pandemic. Consumers are primarily concerned with rising prices, specifically those tied to large purchases such as homes and vehicles. Consumer inflation expectations also remain high with 1-year expectations at 4.7% and 5-year at 2.9%.