Yields Rise as Government Reopens After Record 43 Days

Yields higher as attention turns to December FOMC meeting. Treasury yields climbed across the curve today as markets refocused on the December FOMC meeting amid lingering uncertainty around delayed economic data. Futures markets are now pricing in only a 50% chance of a 25 bp rate cut in December, down from 68% at the beginning of this month. Yields closed 3-5 bps higher across the curve, with the 2-year at 3.59% and the 10-year at 4.12%. Meanwhile, equities slid on reignited valuation concerns among tech giants, with the S&P 500 and NASDAQ declining 1.66% and 2.29%, respectively.

Fed officials offer mixed views on December FOMC decision. Recent remarks from Collins, Bostic, Miran, and other Fed officials over the last few days underscore the continued division ahead of the December FOMC meeting. Conflicting commentary continued today, with Cleveland Fed President Beth Hammack arguing for holding rates steady, saying, “…we need to remain somewhat restrictive to continue putting pressure to bring inflation down toward our target.” St. Louis Fed President Alberto Musalem mirrored her view, noting that “there’s limited room for further easing without monetary policy becoming overly accommodative.” Meanwhile, Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly remain undecided. Kashkari, who opposed the rate cut in October, voiced that he “can make a case depending on how the data goes to cut, I can make a case to hold, and we’ll have to see.” Daly echoed his tone, expressing that it is too soon to decide with four weeks before the next meeting and a wave of data to be released.

US government reopens after longest-ever shutdown. The House of Representatives voted 222-209 Wednesday night to pass a temporary funding bill, which will keep the government open through January 30. The temporary measure leaves room for the possibility of another shutdown at that time, but does provide additional funding for some programs, such as food stamps, to run through September 30. While government workers were back to work today, it is expected to take at least a few weeks to fully reopen agencies and resume normal operations. Transportation Secretary Sean Duffy said today he believes it will take at least a week before flight restrictions are lifted at major airports. It also remains uncertain what government economic data, which has been delayed by the shutdown, will be released and when. The Congressional Budget Office projects the shutdown caused current quarter GDP growth to decline by 1.5%, though the CBO also expects just over half of that to be recovered by early next year as government programs resume operations and employees receive backpay.