Daily Market Color October 31, 2022Market Prepares for Less Hawkish Fed Markets await FOMC decision this week, driving bond selloff. Treasury yields increased today ahead of the FOMC meeting this week, with the 2-year yield ending the day at 4.48% up ~7bps and the 10-year ending at 4.05% up ~4bps. Swap markets indicate that the market expects a 75bp hike this week, however traders see a “coin-toss” between a 50bp or 75bp hike in December and observers generally expect the Fed to start signaling a slowdown in tightening. Latest Fed data release indicates real estate lending is driving an increase in bank loan balances. US banks’ combined loan-to-deposit ratio increased to 66.3% from 66.1%, a 2-year high. The largest increase was in real estate loans, which saw jumps in both residential and commercial balances. In addition, auto loans also continued to increase, though this was more pronounced at larger banks. Analysts will continue to watch bank loan activity for growth and early indicators of credit stress which are becoming more likely as conditions tighten. Despite the headwinds, bank managers have been communicating measured optimism about the road ahead. Day Ahead. This week’s FOMC meeting will dominate headlines but watch out for manufacturing and construction spending data tomorrow.
