Yields End Flat as Fed Speakers Push for Patience

Rates close little changed after an afternoon rise. Swap rates and Treasury yields ended ~1bp higher after rebounding from a strong 10y UST auction that pushed rates ~6bps lower from morning peaks. Consecutive days of strong demand at Treasury auctions have calmed concerns regarding over-supply, also a sign that market participants may expect rates to decline shortly. Meanwhile, NYCB stock rose ~7% today despite a Moody’s downgrade announced last night, while the KRE dropped 0.34%. Equities generally rose as the SPX, DJIA, and NASDAQ climbed 0.38% – 0.92%.

Fed speakers caution against early hikes. Today’s Fed speakers largely echoed Chair Powell’s comments from this Sunday that rate-cuts are unlikely during early-2024. Governor Kugler said she expects inflation to decelerate, warranting cuts “at some point,” but didn’t commit to a firm timeline and left the door open to holding rates high if data changes. Fed President Collins said she sees easing happening later in 2024, and President Kashkari said he expects 2-3 cuts this year (more hawkish than the FOMC’s median estimate), while also adding “…we’re just looking for additional inflation data that is also at around this 2% level…if we get to see a few more months of that data, I think that will give us a lot of confidence.” President Barkin also reiterated the need for patience before easing.

China replaces head securities regulator. China announced today that Wu Qing will replace Yi Huiman as chief of the China Securities Regulatory Commission. The move came after news of a meeting between regulators and President Xi Jinping sparked a significant equity rally yesterday, as signs continue to build that significant changes are imminent. The move was a surprise, but a welcome sign given the signaled sense of urgency and its previous success, where the CSI 300 rose over 40% in the two-year span following a similar leadership change in 2016. The CSI 300 is up over 6.5% since last Friday, which was a 5-year low.