Treasury Auction, Continued Hawkish Fed Commentary Spur Yield Rise

Yields climb, prompted by weak demand in Treasury auction. Treasury yields rose across the curve today, fueled by a steep bond sell-off following a poor 30-year Treasury auction. The low demand forced the 30-year yield to jump ~7bps higher in the immediate aftermath of the auction, with the 2 and 10-year yields following suit before rallying ~4bps at the session’s end. Fed member Thomas Barkin also contributed to the move higher after he stated “I think we’ve still got a ways to go” regarding cooling inflation. Elsewhere, equities dropped lower on the day, with the NASDAQ Composite decreasing 1.02%.

Loan loss provisions at US banks increased in 4Q22. Provisions increased compared to the prior quarter at half of US banks with $10-$50bn in assets that announced earnings in the last week of January, and 41 of the 51 total reported an overall increase. Only one bank in the group reported negative provisions. Amongst banks with +$50bn in assets that reported during the same timeframe, 6 out of 9 reported increased provisions, while 3 saw a decline from the previous quarter. The increased provisioning comes as economic conditions tighten, with banks preparing for credit deterioration even as managers communicated relative optimism about the year ahead. The elevated provisioning also follows a period of benign credit conditions, with historically low levels of NCOs. US Banks overall ended 2022 with a 0.17% NCO/Avg. Loan ratio, and a 1.32% Reserves/Gross Loans ratio.

Day ahead. Public comments from Fed voters Christopher Waller (hawk) and Patrick Harker (neutral) will be under a large microscope after a recent onslaught of hawkish sentiment from various Central Bank members. Michigan consumer sentiment will kickstart the day at 10 AM in an otherwise quiet data session.