Short-Term Rates Rally Ahead of Tomorrow’s FOMC Decision

Short-term rates rally ahead of FOMC decision, earnings continue to fuel equities. The long-end of the curve remained relatively unchanged on the day, the 10-year U.S. Treasury yield closing at 1.55% while the short-end rallied ahead of tomorrow’s FOMC policy decision. The Fed is expected to keep its policy rates the same (0.00% to 0.25%) tomorrow, but the central bank is expected to announce the beginning of the tapering of its $120 billion bond purchasing program. Since the onset of the pandemic, the Fed’s balance sheet has increased to over $8.5 trillion, more than doubling its assets. Elsewhere, equities closed higher as strong earnings continued, profit margins remaining healthy as companies successfully passed along higher input costs to customers.

Swift vote on Joe Biden’s $1.75B spending bill seems unlikely. Five additional congressional democrats voiced concerns around Joe Biden’s $1.75B spending bill- joining West Virginia Senator Joe Manchin in speaking out publicly against the bill. All five democrats said that they would not vote on the spending package until they receive scoring information from the Congressional Budget Office and Joint Committee on Taxation. Democrats also continue to iron out details surrounding prescription drug prices and state and local tax deductions- both contentious issues that divide the party. A vote on both the spending bill and a separate bi-partisan infrastructure bill is still expected before mid-November.

Day ahead. In addition to the Fed’s rate decision and subsequent press conference the market will also get the latest look at private payrolls, a precursor to Friday’s jobs report. Private payrolls are expected to increase by 400k, down marginally from last month’s strong figure. Markit’s latest composite and services PMIs will also be released with factory and durable goods orders. Markit’s surveys are expected to show continued growth in services activity while durable goods and factory orders are expected to increase marginally.