Retail Sales and Fed Commentary Highlight Busy Session

Curve flattens despite Fed commentary, strong retail sales. Treasury yields continued to invert today, the 2-year yield rising ~2bps to 4.36% while the 10-year yield fell ~8bps to 3.69%. Highlighting the day were comments from New York Fed President John Williams, who said that the Fed should avoid incorporating “financial stability vulnerabilities” into its rate hike decisions. Meanwhile San Francisco Fed President Mary Daly emphasized that a rate hike pause is not in the cards, though she acknowledged that a 4.75% – 5.25% range would be a “reasonable” place to hold rates. Today’s move saw the 2s10s spread fall to -67bps, the lowest it has been in in over 40 years.

October retail sales figure comes in above expectations. The advance estimate of October retail sales was up 1.3% MoM vs. the 1.0% consensus estimate and 0.0% growth in September. On an annualized basis, retail sales were up 8.9%. 9 of 13 retail categories rose, including auto dealers, grocery stores and restaurants. This increase was the largest in eight months, indicating demand for goods is holding up despite high inflation and tighter economic conditions. Viewed in isolation, the surprise complicates arguments for a reduction in Fed rate hikes.

Day ahead. Housing starts and building permit data will be released at 8:30 AM ET. Fed voters Michelle Bowman (hawk) and Philip Jefferson (dove) will make public comments at 9:15 AM ET and 10:40 AM ET, respectively.