Curve Steepens as Omicron Fears Subside

Yields increase across a steepening curve and equities rebound as Omicron fears subside. In a reversal of the flattening trend we have seen in recent weeks, the yield curve steepened today by the most since October off positive news on the Omicron variant. Early data has shown that although Omicron does appear to be more transmissible, its impact seems to be milder than other Covid variants. The optimism led equities to rally as yields sold off, with investors becoming more confident that the global recovery will stay intact. The 2-year versus 10-year U.S. Treasury yield increased 5 bps on the day as the 10-year closed at 1.43%.

New York City becomes the first U.S. city to call for vaccine mandate for private employers. In the face of rising COVID cases and the threat of the Omicron variant, today Mayor Bill de Blasio called for stricter vaccine mandates on employers within NYC. The mayor also strengthened rules for indoor activities. On December 27, people will need to be fully vaccinated to enter indoor establishments, while children from the ages of 5 to 11 will be required to have at least one dose of a vaccine. It is not clear how the city will enforce the requirement on private employers.

Bank of England (BoE) strikes dovish tone in the face of the Omicron threat. Diverging from its U.S. peer, the central bank of England commented that the expected December rate hike may be on pause.  Michael Saunders, known to be one of the more hawkish BoE policymakers, commented he would need more information on Omicron before making a rate decision this month. In November, the market was pricing in an almost certain 15 bps increase, with traders now pricing in 6 bps for next week’s BoE meeting. As traders pare back bets on BoE’s rate hikes, in recent weeks, markets have pulled forward potential rate hikes in the U.S. to June 2022 after hawkish comments from the Fed in recent weeks.