Rates Climb Again, BOJ Announces More Bond Purchases

Treasuries sell-off on Fed commentary. Yields were up 1-11 bps across the curve today, with 10 and 30-year yields hitting multiyear highs during intraday trading as various Fed speakers said that rates will need to stay elevated to stem inflation. The sell-off was also bolstered by the US avoiding a government shutdown, which prompted traders to raise bets on a November Fed hike. The S&P500 clawed back losses in the final minutes of the session to end little changed, while the NASDAQ ended up 0.8%, driven by mega-cap technology gains. WTI crude dropped below $90 per barrel today, reversing a portion of crude’s biggest quarterly rise since March 2022, as analysts warned that slower demand from China may offset price gains due to OPEC+ supply cuts.

Barr says rates need to stay high, but Bowman says they need to go higher. Fed Vice Chair for Supervision Michael Barr said today that the Fed is “likely at or very near” sufficiently restrictive rates and argued that the question of “how long should rates stay high” is top of mind. His comments align with recent Fed language, and he also added that the impact of prior hikes has yet to be felt. On the other hand, Fed Governor Bowman (a notable hawk) said that multiple hikes may be needed to tame inflation, and that there is a high risk that energy prices could impede recent progress.

BOJ announces additional bond purchasing plan. In response to spiking global yields, the BOJ announced an increase of its purchases of 5 to 10-year debt. Intervention looks to play a key role for the foreseeable future in Japan, as they have now incorporated 3 unscheduled buying operations since July, and many believe that the negative rates era will be lifted. The yen extended its depreciation against the dollar and is at its weakest level since October 2022.