10y UST Yield Nears 5% as Middle East Escalation Continues

Rates climb yet again. As the war in Israel continued, so did the bear steepening in swap rates and UST yields: markets continue to fear that inflationary pressures will remain elevated due to potential escalation and global shocks. Meanwhile, Fed President Williams offered hawkish comments that further boosted yields, though Waller was more dovish and suggested a “wait and see” approach. In the end, the 2y UST yield closed at 5.22% and the 10y at 4.92%, the gap to 5% now at only ~8bps.

Fed’s Beige Book signals less confidence in certain areas of the US economy, but little change overall. The Beige Book released for the period up to October 6th indicated that economic activity was little changed since the September report, but offered less positive outlooks on certain segments of the economy. Views on consumption, especially during the holiday season and including travel, were mixed. Banks reported declines in loan demand and lending appetite, while firms reported less urgent hiring, indicating labor market easing. Consistent with prior releases, prices continue to rise, but service sector input costs are increasing more rapidly than for manufacturers. Businesses still reported difficulty passing cost pressures along to consumers, while consumers continued to grow more price sensitive.

Oil spikes as Iran calls for an embargo against Israel. Tension from the recent hospital strike in Gaza continues to arise, and today’s headlines included Iranian Foreign Minister Hossein Amir-Abdollahian’s call for “an immediate and complete” oil embargo against Israel. Brent crude oil rose as much as 3.5% in the immediate aftermath of the comments and closed 1.58% higher. Oil was also boosted by the Energy Information Administration’s report that U.S. commercial crude inventories fell by 4.5M barrels from last week.