Long-Term Rates Rise Again, Equities Struggle

10-year UST yield highest since 2007. Yesterday’s hawkish FOMC minutes continued to influence financial markets today, driving long term rates to a 16-year high as the 10yr UST yield briefly touched 4.328%. Data released by Freddie Mac supplemented the rise, showing the average US mortgage rate at 7.09% — the highest level in the past 20 years. The surge in long-term rates was not isolated to the US, as Germany, the UK, and Australia all saw benchmark 10yr rates hit multi-year highs.  

Restrictive sentiment has been crushing for equities. Equities have not been fond of the recent rise in rates, as the S&P 500 (-0.77%) and the tech-heavy NASDAQ Composite (-1.17%) dropped yet again today. Both are at their lows since June and have fallen sharply in August after rising substantially in July. Meanwhile, the VIX (Wall Street’s fear gauge) reached ~18 today, a high since May.

Consumers credit Fed for inflation slowdown, survey shows. A survey conducted in June by NY Fed showed that US consumers believe Fed policy was the biggest reason for cooling inflation over the past year, followed closely by better supply-chain dynamics. Those were also the top reasons why consumers expect inflation to keep slowing over the next year. These are encouraging results for a Fed that faced a legitimacy crisis early in the cycle when the transitory inflation narrative was upended by persistent price pressures and helps the FOMC’s case if they decide on more hikes, especially given the risks of overtightening.