Supply Chain Disruptions Send 10-Year to Highest Level Since June

10-year Treasury yield hits highest level since early June as curve re-steepens. Both the Treasury and swap curve steepened today in a reversal of the recent flattening trend as markets pared back its aggressive hiking bets. Fed Funds futures,  which had priced in an 82% likelihood of a rate hike by July, ended the day with only a 64% implied probability of a rate hike by that time.  Meanwhile, the long end of the curve rose and followed other G10 rates higher as supply chain dynamics and inflation risks remained top of mind for the market. The 10-year Treasury yield would ultimately close up nearly 4 basis points to 1.64%. US equities also climbed on the day as companies like P&G reported strong quarterly results in spite of rising input costs- the S&P 500 climbed 0.7% on the day.

U.S. housing starts unexpectedly fell by 1.6% in September as August data was also revised downward. Supply constraints and labor shortages were the primary reason for the decline in housing starts with multifamily housing taking the biggest hit during the month. Applications to build also fell by the largest margin in seven months at 7.7%.

Fed Governor Michelle Bowman and Richmond Fed President Thomas Barkin claim U.S. labor shortages could continue post-pandemic. Governor Bowman commented today that the lack of childcare options could hinder women from getting back into the workforce, and older women who left their jobs during the pandemic are unlikely to return. Both issues could be a drag on U.S. economic recovery moving forward. Richmond Fed President Barkin echoed Bowman’s comments saying that the current U.S. labor shortage could outlast the COVID pandemic. Barkin pointed to better education, health, and childcare policies as a way to incentivize people back to the labor market.