Rates Jump to Kick-Off Packed Week

Rates grind higher in risk-on session. Swap rates and Treasury yields rose across a flattening curve today, fueled by a 2-year UST auction that produced the highest yield (awarded at 4.823%) since 2007. The 2-year yield rose over 8bps to 4.92%, while the 10-year yield climbed 4bps to 3.87%. Elsewhere, bank stocks and other equity indices continued to rally, the KRE Bank Index rising to just over 47 and the DJIA climbing for the 11th straight day, the longest run since 2017.

The Fed’s stomach for inflation may be key to a soft-landing. The Fed is largely expected to hike 25bps this week. As participants look toward the end of the current tightening cycle, many are also searching for the oft-discussed soft landing, where inflation normalizes without a significant economic downturn. Key to this possibility, many contend, is the Fed’s willingness to tolerate inflation higher than 2% for a sustained period. Without a recession, the labor market is expected to remain tight, as worker demand outpaces supply. Wages will stay elevated, contributing to price pressures. JPMorgan chief economist Kasman commented, “it’s going to be hard to get enough demand compression without a recession to get that price pressure out of the system.”  

Day ahead. Consumer confidence data, expected to increase to 112.0 from 109.7 last month, will lead the day at 10 AM. Richmond Fed manufacturing will also be released at 10 AM.