Daily Market Color

Rates Rise Ahead of Fed Blackout

Rates rise with increased expectations for another 75bps hike. Swap rates and Treasury yields rose across a flattening curve as the Fed continued to display its hawkish mindset. Fed Governor Christopher Waller said that he favors another “significant” increase in rates at the upcoming FOMC meeting, while St. Louis Fed President James Bullard said that he is in favor of a third straight 0.75% hike. These comments caused a spike in the 2-year yield, which rose ~6 bps to 3.56%, as markets are now pricing in a 90% probability of a 75bps tightening on the 22nd.

Inventory data points to improved economic growth. A key component to the GDP calculation – July wholesale inventory growth was 0.6% MoM, lower than the 0.8% initial estimate. Much of the increase could be attributed to motor vehicle inventories, which rose 1.7% in July. Inventories remain elevated YoY however, up 25.1%.

Week ahead. The Fed begins its blackout period tomorrow, which will extend until the FOMC meeting ends on September 22nd. The CPI print on Tuesday will be the most closely watched economic release, followed by PPI on Wednesday and industrial production on Thursday.

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