Rate Hikes Persist Amid Retail Sales Moderation: Markets React to Yield Inversion and Fed’s Potential Move

Rates rise despite moderating retail sales figures. Swap rates and Treasury yields rose across a flattening curve, furthering the inversion to an extremity that had not been seen in 2+ decades. This deeper inversion came despite a slight 0.3% increase in retail sales in the month of August, potentially a result of the revised -0.4% revision to the July figure. Markets futures are now pricing the probability of a 75+ bp hike by the Fed next week as a near certainty. On the day, the 2-year UST yield increased ~7 bps to 3.86%, while the 10-year UST yield increased ~5 bps to 3.45%.

Mortgage rates reach a post-GFC peak. The average rate on 30-year fixed mortgages reached 6.02% this week, 13 bps above last week’s level. The rapid rise in rates has led to a 29% decline in mortgage demand and a more than 80% decline in refinancing activity since last year. This is a positive sign in the race to lower inflation, however, prospective homebuyers are feeling the pinch, and mortgage lenders may see lower production after two steady quarters of growth to start the year.

Day ahead. Friday will kick off with consumer sentiment data at 10:00 AM ET and will be followed by net long-term TIC flows data at 4:00 PM ET.