Rates up on Inflationary Data, Hawkish Fedspeak

Treasurys continue to sell-off. Treasury yields continued their climb to multi-month highs today, with the 2 and 10-year yields rising ~7bps to 4.88% and 3.99%, respectively. The 10-year yield stretched above 4.00% for the first time since early November, while the 2-year yield peaked at 4.90%, a level we have not seen since 2007. The move was partially spurred by an improvement in ISM manufacturing, the first increase in six months after falling to its weakest level since May 2020. Hawkish Fedspeak from Raphael Bostic and Neel Kashkari also played a role in the Treasury and equity selloff, the S&P and NASDAQ indices falling on the day.

Fed Speakers lean into Hawkishness today. Fed officials continued to reiterate the need for further hikes today. Atlanta Fed President Bostic wrote in an essay published today that rates would need to rise to between 5% – 5.25% and remain there “until well into 2024.” On the topic of a 50bp hike in March, Minneapolis President Kashkari is still uncertain about whether he will back a faster hiking pace, saying “to me, much more important than whether it’s 25 or 50 is what we signal in what’s called the dot plot.” Given continued U.S. inflation, Kashkari said “we’re not yet seeing much of a sign of our interest-rate increases slowing down the services sector of the economy and that is concerning to me.” 

Day ahead. Tomorrow’s session will be relatively quiet. Labor costs, nonfarm productivity, and initial jobless claim data will lead the day at 8:30 AM ET. Fed member Christopher Waller will make public comments at 4 PM ET ahead of a busier Fed schedule on Friday.