Rates Rise Ahead of FOMC Decision

Swap rates and Treasury yields rise on eve of FOMC meeting conclusion, press conference. Swap rates and Treasury yields rose 3 basis points across the curve in a light volume day ahead of the FOMC’s rate announcement and Fed Chair Powell’s press conference. The 10-year Treasury yield rose three basis points to close at 1.44% while the front end of the curve also rose, the 2-year Treasury yield grinding higher to close at 0.66% – only 3 bps away from its YTD high. Risk assets had a more tumultuous session, equities falling across the board, the Nasdaq Composite and S&P 500 falling 0.5% and 0.8% respectively.

November producer price index (PPI) prints the highest annual recorded gain. The year-over-year headline November PPI increased 9.6% while October’s print was revised upward to 8.8%. Costs of both goods and services increased at 1.2% and 0.7% compared to the prior month as inflationary pressures continue to broaden. Supply chain issues continue to be a primary source of rising costs as consumer demand continues to be persistent.

Fed policy announcement tomorrow at 2p EST The Fed’s final FOMC meeting of 2021 will end tomorrow with their policy announcement at 2p EST. Many Fed members have become increasingly hawkish in recent weeks as inflationary pressures have proved to be more lasting. Fed members have indicated a willingness to quicken the pace of tapering to end its pandemic-era bond-buying program by early spring 2022. The Fed will also release its final rate dot plot of the year, which will give investors a view of how hawkish members have become in recent weeks.