Rates Continue Rise on Strong Economic Data

Rates rise once again, 10-year Treasury yield approaches 1.50%. Rates resumed their march higher today after durable goods orders and other economic data roundly beat forecasts. The 10-year Treasury yield climbed 3 basis points on the day to close at 1.49% – bringing its 1-month move to 0.21%. The retirements of two Fed presidents (Kaplan and Rosengren) did little to sway today’s price action, though markets will closely watch the appointments of their replacements.

Commercial lending continues to rebound for both large and small banks.  Small banks CRE lending had its best week of 3Q growing at a weekly annualized rate of 9.68%, while large bank CRE rebounded from last week’s contraction, improving 7.44% on a weekly annualized basis. CRE lending has driven the growth in U.S. banks commercial growth in 3Q, as PPP loans are still rolling off bank balance sheets within C&I lending. With only two weeks left in 3Q data, both small and large U.S. banks are looking to close its best commercial lending quarter of 2021.

Fed’s Evans and Brainard throw some cold water on the Fed’s recent hawkish outlook. Fed Governor Lael Brainard commented today that the U.S. labor market is “still a bit short of the mark” for the Fed to rein in its $120 billion bond-buying program. Brainard further commented that the recent pullback in employment in August could continue into the near term as the COVID delta variant has slowed hiring in the services industry. In a similar vein, Chicago Fed President Evans commented today that the recent “supply-side-induced transitory surge” in inflation might not be enough to hit the Fed’s long-term inflation goal of 2%. The dovish comments come after last week’s FOMC where the Fed indicated it might start tapering its bond-buying program as soon as November.