Debt Ceiling Talks Continue to Dominate as Rates Rise Across the Curve

Rates, equities sell-off after data, continued debt-ceiling discussions. Swap rates and Treasury yields rose across a flattening curve today after retail sales showed signs of backtracking from negative levels, suggesting strengthening consumer spending. Continued concern regarding the debt-ceiling standoff pushed yields higher as well, though Kevin McCarthy noted that “It is possible to get a deal by the end of the week. It’s not that difficult to get to an agreement.” The 2-year yield ended the day ~7bps higher at 4.08%, its highest level since early May. Elsewhere, equities fell on the session, the DOW declining 1.01% and the S&P 500 falling 0.64%. 

Retail sales figures reverse course from prior months. Retail sales generally exceeded expectations in April, flipping the script after a cross-category decline in March. The first increase in three months was driven by elevated spending in 13 retail categories, including auto dealers, general merchandise outlets and online merchants. Miscellaneous store retailers saw the largest increase of 2.4% on the month, while sporting goods, hobby, musical instrument and book stores saw the steepest decline of 3.3%. Wells Fargo economists see this as the potential impact of continued wage inflation and low unemployment supporting consumer consumption, but recent data showing one of the largest spikes in credit-card debt on record in March may suggest that consumers are overextending themselves.

Day ahead. Mortgage data will lead the session at 7 AM, which will be followed by building permit and housing start figures at 8:30. Building permits are expected to come in above last month’s level of 1413k, while housing starts are expected to decrease from 1420k to 1400k.