Treasury Yields Stage a Comeback After Rallying For Eight Trading Sessions

Rates rise after rallying for eight trading sessions

The bond market rally cooled off as Treasury yields and swap rates ended the day 1-7 bps higher across the curve.  While the 10-year UST yield posted a second consecutive weekly decline, the benchmark yield closed almost 7 bps higher at 1.36%.  Major equity indices closed at record highs – the S&P 500, DJIA, and Nasdaq rose 1.1%, 1.3%, and 1%, respectively.

Fed’s Monetary Policy Report says labor shortages and low input supply are limiting growth

While the Fed attributes much of this year’s economic growth to the US’ vaccine effort, the report detailed, “shortages of material inputs and difficulties in hiring have held down activity in a number of industries.”  As a result, the Fed believes “Upside risks to the inflation outlook in the near term have increased.”  According to the June FOMC minutes, the majority of Fed officials also believe elevated levels of inflations could spill into next year.  While the Fed continues to stick by its outcomes-based approach, the central bank says it is “prepared to adjust stance of monetary policy as appropriate if risks emerge.”

San Francisco Fed President Mary Daly believes delta variant could delay economic recovery

While Daly admits the vaccine effort has springboarded the economic recovery in the US, other countries that have lower rates of vaccination pose a threat to the global economy.  Daly added, “I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on Covid.”  She believes that the delta variant could impact markets if continues to spread at its current rate, commenting, “Markets respond to those things, and that can of course lower yields because they’re pricing in the risk there.”