Hawkish Fed Speaker Comments Prompt Selloff in U.S. Treasurys

With corporate earnings mostly concluded for this quarterly reporting period, the timing of a rate hike continues to monopolize economists’ discussions as the week comes to a close.  Markets remain split on whether there will be an increase in the benchmark rate by year end, with the latest tea leaves supplied by a speech from Federal Reserve Bank President John Williams yesterday afternoon.  Williams presented hawkish comments regarding the need to raise rates sooner rather than later, and hinted that markets are currently underestimating the potential for near term hikes.  US rates sold off in sympathy this morning, while both stocks and oil have experienced mild declines on the day.  Looking forward, investors are anxiously awaiting Fed Chair Janet Yellen’s speech next week at the Monetary Policy Symposium for further indications on Fed timing.

Overseas, European stock markets finishing down 0.8% on the day, completing their worst weekly loss in over a month.  Shares in Italian banks led the decline where concerns over bad debts prompted a 6.3% fall.  Five major banks in Australia also experienced a selloff in share price today after Moody’s revised their ratings outlooks to negative from stable, citing a difficult operating environment and deteriorating profit growth.  In Asia, the main equity indexes headed into the weekend with moderate gains after a choppy week of trading.               
 
All three major US stocks indexes are marginally down close to 0.3% for the day, while Treasury yields and swap rates are up 3-7bp across a flattening curve, with larger moves in the front end.  Oil appears to have stalled from its six-day rally, with both Brent WTI crude prices hovering near flat on the day.