Daily Market Color

Rates Fall as Markets Weigh Price Pressures

Rates turn lower despite rising inflation expectations
Treasury yields/swap rates closed 1-3 bps lower across the curve – the 10-year UST yield near 1.56% (-3bps). The rally came despite the 5-year breakeven rate, which is a gauge of the market’s inflation expectations, rising to the highest level since 2008.  While newly released economic data continues to support a path to rising inflation, Fed officials have done their best thus far to label the recent uptick as transitory. In US equity markets, major indices hovered near throughout the trading session – the S&P 500 and DJIA rising 0.1% and 0.3%, respectively, while the Nasdaq lost 0.4%
US private payrolls rose by 742,000 in April, the largest gain since September
Hiring was distributed across all sectors, with notable gains seen in leisure and hospitality (+237k), manufacturing (+55k), and construction (+41k).  The report serves as a preview of Friday’s unemployment report, which is expected to show a 995,000 gain in nonfarm payrolls and a 5.8% unemployment rate.
ISM services index fell from 63.7 to 62.7 last month
While US service providers increased their pace of hiring in April to meet demand driven by businesses reopening and the vaccine effort, rising input costs and falling inventories limited activity.
Boston Fed President Eric Rosengren believes price pressures are “likely to prove temporary”
He commented, “Toilet paper and Clorox were in short supply at the outset of the pandemic, but manufacturers eventually increased supply, and those items are no longer scarce. Many of the factors raising prices this spring are also likely to be similarly short-lived.”  While he still believes the economy still requires “substantial improvement” before tapering conditions are met, Rosengren added, “It’s quite possible that we’ll see those conditions as we get to the latter half of the year.” 

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