Bonds Give Back Gains, Equities Continue to Rally Ahead of MLK Day

Yields rise in risk-on session. Bonds sold off today, giving back some of yesterday’s post-CPI gains and bringing the weekly move in the 2-year Treasury yield to a subdued –0.02%. Yesterday’s CPI figure marked the 6th consecutive month of decreasing inflation, which continued to support equities today, the NASDAQ index rising .71% while the S&P ticked higher by .40%.

First Michigan sentiment survey of 2023 shows improvement in consumer outlook. The preliminary University of Michigan Sentiment index reached its highest level since last April, coming in at 64.6 in January vs. the 60.7 estimate and higher than last month’s 59.7 print. In addition, the current conditions and consumer expectations preliminary figures were both higher than estimates and elevated compared to last month. The current assessment of personal finances also increased to its highest reading in 8 months, primarily due to higher incomes.

Week ahead. The bond market will be closed on Monday for Martin Luther King Day. There will be plentiful Fed commentary next week, which includes voters John Williams, Patrick Harker, Lorie Logan, Lael Brainard, and Christopher Waller, as well as non-voters Raphael Bostic, James Bullard, and Susan Collins. Banks will also continue to report fourth quarter results in earnest as earnings season gets underway.