Rates Bounce Back to End Volatile Week

Rates rise significantly after strong data. Swap rates and Treasury yields rose across the curve today, pushed higher by strong short-term inflation expectation figures and consumer confidence data from the University of Michigan. The strong data pushed the 2-year yield 14bps higher to 4.77%, a net -20bp move on the week. The 10-year yield rose 7bps to 3.83%.

Busy week quiets support for multiple rate hikes. Data this week fueled optimism that inflationary pressures are easing, offering the Fed a more reasonable path toward hiking only once for the remainder of the year. CPI and PPI both came in well below expectations, which pushed the policy-sensitive 2-year yield as many as 50+ bps below last week’s high. Despite the move lower, futures continue to suggest a high probability of a 25bp hike at July’s Fed meeting, the odds dipping no lower than ~89% throughout the week.

Week ahead. Retail sales (Tuesday) will highlight the week’s economic data. New York and Chicago manufacturing, jobless claims, and existing home sales figures will also be released. Fed members Barr and Gibson will make public comments on Tuesday.