Banking Sector Concerns Force Rates Lower, China Equities Soar

Rates fall 4-9bps as CRE credit concerns remain in focus. Swap rates and Treasury yields offset some of yesterday’s move as banking sector concerns and strong demand at today’s 3y UST auction drove a significant rate decline. The KRE fell 1.26% on the session, now ~11.6% lower than its 2024 peak. Meanwhile, the NASDAQ, DJIA, and SPX all rose today, though China’s equity roar overshadowed the US rally.

China stocks rally as regulators prepare to brief President Xi Jinping. Chinese equities soared after news broke that regulators are planning a meeting with Xi Jinping to discuss current market conditions and paths forward. Moreover, the China Securities Regulatory Commission promised greater effort in guiding investors and funds into the market, while Central Huijin Investment Ltd., a state-owned investment company, said it will increase holdings of ETFs. The CSI 300 (which tracks the top 300 stocks on the Shanghai Stock Exchange) had its largest intraday gain since 2022 (+3.48%), while the CSI 1000 climbed 6.97%, its best session in over a decade.

Cleveland Fed President Mester expects three 2024 rate cuts. Fed President Mester said today that the FOMC will likely have enough information to cut rates, “later this year” if, “the economy evolves as expected.” She maintained her expectation of three cuts in 2024 but also echoed Chair Powell’s recent sentiment that moving too quickly without enough evidence of a sustainable reduction in inflation would be a mistake. Separately, Fed President Kashkari highlighted the progress made on inflation, and that inflation appears on track to return to 2%.