Rate Hikes are Coming

Another day, another sell off. Treasury yields and swap rates jumped higher for the fourth consecutive session, 2-year yields stretching higher to 0.87% (another post-pandemic high) while the 10-year yield rose another two basis points to close at 1.72%- the highest it’s been since March 2020. Long-term rates have sold off nearly 20 basis since the start of the year.

The Ides of March. It seems the Fed is getting anxious with the current state of inflation and won’t wait until summer to shut down the liquidity party. At a conference today, St. Louis Fed President James Bullard commented that the Fed could increase the policy rate as “early as March” to help control rising inflation, echoing Fed participants’ views from the December FOMC minutes. Bullard was on the sidelines in 2021 as a non-voting Fed member, but his view will hold much more weight from market participants in 2022 as he becomes a voter.

Will tomorrow’s jobs report reverse the momentum in rates? Tomorrow will bring 2022’s first nonfarm payrolls report, currently forecasted to show an increase of 447,000 jobs in the month of December. The latest spike in COVID-19 cases didn’t occur until late last month, and likely won’t create much noise in the figure (at least for now). Average hourly earnings will also be watched closely after several months of elevated wage inflation.