Treasury Yields Fall Ahead of December FOMC Meeting

Rates decline ahead of FOMC meeting. Following Friday’s much-awaited inflation print, which revealed year-over-year CPI hit a 39-year high, markets have turned their attention towards the December FOMC meeting. Fed Chair Powell’s press conference on Wednesday is expected to shed light on the Fed’s tapering timeline, inflation, and the economic impact of the Omicron variant.  Ahead of the meeting, Treasury yields and swap rates closed 1-8 bps lower across a flattening curve – the 10-year UST yield ended the day 7 bps lower at 1.42%. Major US equity indices closed in the red – the S&P 500 and DJIA declined 0.9%, while the Nasdaq fell 1.4%.

20 central banks are set to meet this week. Investors will be watching for monetary policy updates from central banks around the globe with the U.S. Fed, European Central Bank, Bank of Japan, and Bank of England headling the week of policymaker meetings. The central banks will be balancing rising global inflationary pressures and the effect of Omicron the the global recovery. In recent weeks, U.S. Fed members have become increasingly hawkish as rising prices have become stickier than expected, and investors will be keen to hear of any update to the Fed’s taper timeline and its outlook for rate hikes headings into 2022. The Fed’s FOMC meeting starts tomorrow with its policy announcement and Fed Chair Powell’s press conference on Wednesday.

The November producer price index (PPI) will be released tomorrow, with analysts expecting headline year-over-year PPI to increase to 9.2%. Last Friday, November consumer prices hit a 39-year high after producers reported a year-over-year increase of 8.6% in input prices during October. Thus far, producers have successfully passed along rising costs, as consumers have shown resilience in the face of rising prices.