Daily Market Color

Rates Trade Higher as Congress Extends Stimulus Deadline

Treasurys fall, rates rise as prospect of stimulus rises
The White House and Congressional Democrats were unable to reach a compromise overnight , officially missing their Tuesday deadline.  According to Pelosi’s spokesman, she and Treasury Secretary Steven Mnuchin “moved closer” on a deal and have agreed to continue talks into Wednesday.

Equities remained in the green this morning after the S&P 500 and DJIA closing 0.47% and 0.4% higher the day before.  Treasury yields and swap rates ended Tuesday mixed, but are higher 2-3 basis points higher across the curve this morning. The 10-year Treasury yield is now at 0.81% – it’s highest level since early June.
Chicago Fed President Charles Evans is “reasonably optimistic” that unemployment could reach 5.5% by the end of 2021
Despite the recent resurgence in virus cases in hotspots around the country, Evans predicts that a second or third wave would not be as detrimental to the economy as the first.  Evans added, “We seem to be powering through this no matter how adverse and horrific those consequences are for households, families around the country.”  In spite of his optimistic outlook, Evans alongside his colleagues continues to stress the importance increased fiscal aid, adding “We really need fiscal and public health authorities to be supporting and improving the economic environment.” 
Community banks report lower third quarter profits 
Despite no significant issues in credit, community banks are reporting lower net interest margins. Excess liquidity continues to be a challenge, much of the deposit influx a direct result of PPP lending.  With the Fed reporting that Q3 commercial bank deposits remain elevated and loan growth stalling (minus PPP deals), cash continues to pile up. 

In addition to the margin pressure, lenders are focused on curbing potential future credit losses by continuing to approve loan payment deferrals.  Despite their popularity in Q2, COVID-19 related loan amendments are on the decline, falling an estimated 60% across the banking sector in Q3.

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