Rates Spike Alongside Rising Oil Prices

Swap rates rise significantly to start the week. The swap curve bear steepened today as the belly and long end of the curve rose over 10bps while the short end climbed 6-9bps. All Treasury yields are now above 4% other than 3-year (3.96%) and 5-year (3.99%) tenors. The move occurred gradually throughout the session and was without a clear catalyst, though rising oil prices and corresponding inflation expectations likely contributed. Brent and WTI crude oil rose 1.30% and 1.56% today, respectively.

Fed President Kashkari expects “modest” rate cuts at upcoming FOMC meetings. Following September’s 50bp rate cut, markets expect a smaller 25bp move in November. Minneapolis Fed President Neel Kashkari seems to agree, as he said today that he forecasts “some more modest cuts over the next several quarters to get to something around neutral, but it’s going to depend on the data.” He pointed to the labor market as the guiding factor, which recently showed its strength as nonfarm payrolls was 100k higher than expected in September while the unemployment rate dropped to 4.1%. Dallas Fed President Lorie Logan offered similar comments, as she argued for “gradually lowering the policy rate” while citing “downside risks to the labor market.”

Chinese banks cut lending rates. Commercial lenders cut key lending benchmark rates in another attempt to support China’s struggling economy. The 1-year and 5-year loan prime rates were lowered by 25bps to 3.1% and 3.6%, respectively. The moves come after the central bank announced several measures to encourage household spending in September, with standard Chartered Bank’s head of China macro strategy Beckly Liu saying, “The larger cuts confirm the PBOC’s stance of easing monetary policy more quickly.”