Rates Fall Again as Recession Fears Dominate

Rates decline 10-15 bps in continuation of the FOMC rally. Yesterday’s price action continued into today as Treasury yields and swap rates fell across a steepening curve. The market continues to reduce the number of rate hikes priced in through year end, down from 3.60% earlier this year to 3.25%. The belly and the long end of the curve have seen the biggest declines over the past month, the 10-year Treasury yield falling from a peak of 3.50% a month ago to 2.68% as of market close.

Real GDP falls unexpectedly. QoQ GDP fell 0.9% today, which was significantly lower than forecasts that called for a 0.5% increase. The Real GDP signals the overall strength of the economy, encompassing both domestic purchases and net exports, and is adjusted for inflation. This is the second consecutive quarter where Real GDP has reduced and signals a weaker than expected “Post-Covid” recovery.

Day ahead. Tomorrow will bring the latest PCE inflation figures, the Fed’s preferred measure of price increases. We’ll also get the latest look at the University of Michigan’s consumer sentiment and inflation expectation surveys.