Yields and Equities Fall to End July

Growth concerns drive rate rally and equity pullback

As investors grow wary of growth expectations, swap rates and yields fell across a flattening curve. As covid cases are rising globally and corporate earnings at all-time highs, investors are increasingly concerned about the path forward for growth. Further, inflationary fears were abated for the day as the core PCE price index missed analyst expectations, but did increase 3.5% YoY. The 10y UST yield fell 5 bps during trading and has fallen 25 bps since the end of June to close July at 1.22%. All three major equity indices closed in the week in the red drivien by a rout tech stocks.

Fed’s reverse repo facility crosses $1 trillion

The Fed’s reverse repo facility crossed $1 trillion for the first time today, surpassing the previous record set in June of $991.9 billion. The unprecedented usage of the facility has recently been driven by cash-heavy financial institutions, the upcoming U.S. debt ceiling, and lower supply of Treasury bill issuance.

Fed’s Bullard claims markets are “ very much ready for the taper”

St. Louis Fed President Bullard claimed today in an online event that the Fed should start tapering this fall with a goal to end to finish by the second quarter of 2022. Bullard commented that inflation will moderate, but the rate of moderation is in question, and the Fed will need to be prepared to bring inflation to its 2% target.