Daily Market Color

Rates Extend Decline for Another Day

Rates fell sharply across the curve while risk assets turned higher. During his Congressional testimony, Fed Chair Jerome Powell commented, “We have a labor market that’s sort of unsustainably hot and we’re very far from our inflation target.” He confirmed the Fed’s “unconditional” commitment to cooling inflation and admitted that a recession is still “certainly a possibility.” Major US equity indices closed in the green – the S&P 500, Nasdaq, and Dow Jones each rising 1%, 1.6%, and 0.6%, respectively. Swap rates and treasury yields continued to decline for another day. The 10-year Treasury yield ended the day 7 bps lower at 3.09%.

Purchasing Managers’ Index shows manufacturing and services growing in June at a slower pace than estimated. The S&P Global Purchasing Managers’ Index (PMI) composite value measured 51.2 in June compared to 53.6 in May. The report for the index includes separate indices for manufacturing and services. The manufacturing index declined from 57.0 to 52.4, with new orders falling for the first time since July 2020. The services index fell to 51.6 from 53.4 in May, the lowest reading in 5 months. While a reading above 50 indicates expansion, S&P Global wrote, “business confidence slumped to one of the greatest extents seen since comparable data were available in 2012, down to the lowest since September 2020.”

Fed Governor Michelle Bowman calls for continued rate hikes of 50 basis points or more. Speaking at a Massachusetts Bankers Association conference, Bowman expressed that she “expect[s] that an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings.” Bowman said that the FOMC should strive for a positive real fed funds rate where the target rate set by the FOMC exceeds the rate of inflation.

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