Daily Market Color

Printer Unplugged

10-year Treasury yield hits multi-month high after hawkish Fed surprises with even more hawkish minutes. A hot private payrolls number combined with the release of the FOMC’s hawkish meeting minutes to send rates higher by as much as 8 basis points at the front end of the curve. The long end of the curve also sold off, the 10-year Treasury yield climbing above 1.70% to hit its highest level in over 6-months. Tech stocks were hit hard by the increase in rates, the Nasdaq Composite declining by 3.34% on the day while the S&P 500 fell by nearly 2%.

The printer is silenced. After two years of unprecedented monetary stimulus, the recent Fed minutes from December’s FOMC reveal a Fed that has become increasingly hawkish as inflation fears rise amongst the participants. Inflation was front and center during the meeting as inflation forecasts for the participants were revised upward for 2022 while many even raised their forecasts for 2023. After the release, market participants are pricing in over a 60% probability of a March rate hike.

What does private payrolls data imply for Friday’s jobs report? Today’s ADP private payrolls data showed a remarkable increase of 807,000 jobs in the month of December, suggesting that Friday’s closely watched jobs number may also be strong despite some headwinds from the Omicron variant late in the month. That said, the two figures have not always been correlated with one another, particularly in the short-term. Swap rates and Treasury yields have already climbed by 15+ basis points in 2022 and we may see some retracement if nonfarm payrolls fail to measure up.

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