Surprise BOE Decision Sends Rates Lower

Swap rates and Treasury yields plunge as Bank of England unexpectedly leaves benchmark rates unchanged. The Bank of England voted to leave its benchmark rate unchanged – surprising investors that had positioned for an almost certain rate hike in the face of high inflation. 2-year Gilt yields fell 0.21% to 0.46% while 10-year Gilt yields also dropped precipitously lower- declining 14 bps to close at 0.93%. The rally spread to other developed markets- the 10-year Treasury yield declining 8 bps to 1.52% while the 2-year yield had its biggest rally since March 2020- declining 0.05% to 0.41%. Whether or not the Fed follows the playbook of the BoE remains to be seen, but the U.S. central bank now has some significant company – the ECB also having adopted a more dovish stance as of late.

Jobs report set to close out a busy week. The Labor Department’s October jobs report will close out a busy week tomorrow, the closely watched report having flown under the radar in a week that saw the Fed’s taper announcement and a host of economic data releases. Consensus estimates call for nonfarm payrolls to rise by 450,000 in October, compared to the tepid 194,000 figure seen in September. During his press conference, Chair Powell suggested that there was “still ground to cover” before the economy reached full employment.

Fed Chair nomination expected in coming weeks. With President Biden back from the COP26 climate summit, attention will quickly turn towards the President’s nomination of Fed Chair. Traditionally, presidents have re-nominated incumbents to insulate the central bank from partisan politics. That tradition was broken during the last presidential cycle, and during recent hearings several prominent Democratic lawmakers criticized Powell for the Fed’s recent trading scandal and perceived rollbacks of bank regulation. Nonetheless, betting markets still have Powell as the presumptive nominee- PredictIt assigning a 76% likelihood of his re-nomination.