Daily Market Color

Rates Rise as Service Sector Data Surprises

10-year Treasury yield breaks above 1.50% once again as services sector activity surprises to the upside. Swap rates and Treasury yields rose significantly on the day, the 10-year Treasury yield rising 5 basis points to close at 1.53% after the ISM Services index came in above forecasts and energy prices continued their march higher. Bank stocks, which are highly correlated with rates, also rose- the S&P Regional Bank index climbing 0.53% on the day to bring its YTD return to 32.39%.

Banks close in on best quarter for CRE lending in 2021. Large U.S. banks are on pace to have their first positive quarterly growth in CRE loan growth in 2021 with QTD annualized growth at 3.89%. U.S. small banks continue to lead the charge in CRE lending in 3Q with QTD annualized growth at 5.97%. Despite the rebound in loan growth, U.S. banks continue to be bogged down by excess liquidity – cash balances at large U.S. banks growing at their fastest pace in 2021 at 33.37% on an annualized basis.

Federal Reserve’s trading controversy gives Senator Elizabeth Warren ammo against a Powell reappointment. Senator Warren has criticized Powell in recent Senate hearings- sharply criticizing the Fed Chair over his oversight of other Fed members as Eric Rosengren (Boston Fed) and Robert Kaplan (Dallas Fed) announced their resignations over trades they made while they had access to pandemic response plans in 2020. Despite the criticism, the White House issued a statement saying that Chair Powell still has the confidence of the President, making it seem likely that the he will be reappointed before his term is up in 2022.

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