Powell Gets Renominated as Rates Rise to Year-to-Date Highs

Rates rise to YTD highs as Fed Chair Powell is nominated to second term. President Biden nominated Fed Chair Powell to another term, opting for continuity and stability over Powell’s main competitor Lael Brainard who was nominated as vice-chair. All three appeared together this afternoon, Powell and Brainard vowing to combat inflation- a topic that has garnered increasing political attention on both the right and the left. Swap rates and Treasury yields rose dramatically in response to the nomination, ultimately closing 8-10 bps higher across the curve. 2-year, 5-year and 7-year yields all hit year-to-date highs, while the 10-year Treasury yield is only 10 bps away from its March high

Chicago Fed report showed robust economic growth in October. The Chicago Fed National Activity Index (CFNAI) increased to 0.76 in October after contracting during the previous two months. The CFNAI tracks 85 economic indications that include income, employment, consumption, and housing. A positive reading indicates growth above the historical trend. The headline increase was primarily attributed to increases in industrial production.

Weak demand for 2-year and 5-year Treasury auctions help fuel rate sell-off. The $58 billion 2-year auction closed on a high yield of 0.623%, 1.1 basis points higher than the when-issued yield, representing the largest difference since February 2020. The $59 billion 5-year auction closed 1 basis point higher than the when-issued yield as primary dealers took the largest percentage of the sale since February. The 5-year U.S. Treasury yield closed the day up 10 basis points to 1.32%.