As if February Never Left: Treasurys Sell-Off Yet Again

Rates continue ascent, equities finally rally. Swap rates and Treasury yields rose across the curve today, with the 2-year yield’s advance marking its third consecutive day of increases, the longest such streak in 2 weeks. The move came despite dovish commentary from Raphael Bostic, which was offset by previous days’ hawkish Fedspeak, a miss in initial jobless claims, and a beat in unit labor costs. Elsewhere, equities rallied to break their streak of losses, the S&P and NASDAQ rising ~.75% each.

Today’s Fedspeak turns dovish. The Fed is largely expected to maintain its hawkish position during 2023, which has been reaffirmed by Fed speakers throughout the past few weeks. Today, however, Atlanta Fed President Bostic said that he sees the potential for a pause to hikes sometime this summer, stating, “I would expect that we could be in position by the middle of the summer, late summer. We’ll have to see sort of where things are.” He still supports a 25bp hike in March, but is questioning if rates need to be higher than the 5.00% – 5.25% peak rate he has previously supported. Market expectations for the peak rate have climbed to 5.5% on continued economic and labor market strength, evidenced today by strong, yet slightly below forecasted jobless claims data and unit labor costs, which increased by 3.2%, double the market’s expectation. Elsewhere, Secretary Yellen stated that the Fed will have to reduce the “heat” in labor markets, but she thinks it can be achieved without adding to unemployment.

Day ahead. Tomorrow’s schedule is packed with Fed activity, including comments from Lorie Logan, Raphael Bostic, Michelle Bowman, and Thomas Barkin. ISM non-manufacturing PMI at 10 AM ET will highlight an otherwise light data session.