Flood of Corporate Debt Boosts UST Yields

Large corporate debt issuances drive yields higher. A handful of investment-grade companies flooded the market with new debt on the busiest day for issuance since January 3rd, rushing to lock in borrowing costs before upcoming economic data and potential central bank hiking actions. UST Yields reacted across the curve, with the 2-year up ~8bps to 4.96%, and the 10-year up ~8bps to 4.26%. Equities declined and the dollar reached its strongest level since March vs. a basket of currencies today due to inflation concerns. The S&P500 and NASDAQ both ended the day lower.

Oil prices surge on OPEC+ supply cut extensions. Brent crude oil prices reached ~$90 per barrel today on news that Saudi Arabia and Russia will both extend supply cuts until the end of 2023. Saudi Arabia will continue to produce ~9 million barrels per day, the lowest level in years, and Russia will continue its 300 thousand barrel per day reduction. Oil prices are currently at the highest seasonal level in more than a decade and have risen recently on strong demand and smaller inventories despite growth concerns from the world’s largest consumer, China. Higher oil prices mean U.S. consumers will pay more at the pump and could complicate the Fed’s fight against inflation.

Governor Waller says the Fed has room to wait and see. Governor Waller said today that Fed policymakers can afford to “proceed carefully” with rate hikes given recent deflationary data. He signaled that he favors a September skip and highlighted last week’s soft labor data. Waller has been a vocal hawk, so this narrative shift is notable. In July, he said he saw a need for 2x more 25bp hikes, but today he did not say whether he would support additional hikes, instead saying that it will depend on incoming data.