Daily Market Color

Rates Fall After Powell Eases Concerns of Runaway Inflation

Bonds rally once again following Powell/Yellen joint testimony
Treasury yields and swap rates moved lower across the curve once again after Treasury Secretary Janet Yellen and Fed Chair Jerome Powell’s joint testimony before Congress – the 10-year Treasury yield closing 7 bps lower at 1.62%.  While US equity indices closed lower on the day (S&P 500 & DJIA fell 0.7% and 0.9%, respectively), they have recovered remarkably after hitting pandemic lows exactly one year ago. In the remarkable run-up since the pandemic-precipitated bottom, the S&P 500 and DJIA have risen nearly 75%, while the Nasdaq has increased over 92%.
Powell does not expect a rapid rise in inflation anytime soon
During their joint testimony before the House Committee on Financial Services, Yellen and Powell praised Congress’ response to the pandemic, calling the CARES Act “historically important legislation.”  They also spoke in support of the American Rescue Plan and addressed concerns of runaway inflation.  With the assurance the Fed will not hike rates, Powell said, “We’ve been living in a world of strong disinflationary pressures for the past quarter century. We don’t think a one-time surge in spending leading to temporary price increases would disrupt that.”
Sales of existing homes fell by 6.6% in February while housing supply remains low
The figure fell more than expected to an annual rate of 775,000 from 948,000 in January, the slowest pace since May 2020.  The main drivers were harsh weather conditions, rising mortgage rates, and limited supply of homes.
ARRC may not be able to recommend a forward-looking SOFR term rate by the end of 2021
Although banks are mandated to cease entering into new LIBOR-based contracts by December 31st, the ARRC may not be able to recommend a forward-looking SOFR term rate by then due to limited liquidity in SOFR derivatives markets.  Rather than waiting for the term rate announcement, the ARRC recommends banks utilize all available tools, like SOFR averages and index data and the User’s Guide to SOFR.

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