Yields mixed as Fed week kicks off. The yield curve flattened as markets remained wary of energy-driven inflation heading into this week’s FOMC meeting, though oil prices edged lower today. Soft demand in this afternoon’s $69B 2-year auction also placed additional upward pressure on shorter-dated yields. The 2-year yield closed 3 bps higher at 4.72%, while the 10-year yield closed 1bp lower at 4.99%. Meanwhile, equities climbed on positive sentiment following Anthropic’s IPO filing, with the S&P 500 and NASDAQ closing 0.70% and 0.82% higher, respectively.
Indirect talks continue between the US and Iran. Over the weekend, President Trump said he was still deciding between coming to a deal with Iran and “finish[ing] them off,” leaving on the table the possibility of renewed strikes. In response, Iranian Foreign Minister Araghchi said resuming attacks would not change Tehran’s negotiation positions, and Iran also warned that US ships would not be allowed in the Persian Gulf “under any circumstances.” Nevertheless, indirect talks between the two nations are still ongoing. Meanwhile, negotiations among Saudi Arabia, Turkey, Pakistan, and Iran were held in Tehran, with Iran’s security chief Rezaei describing discussions as “very good,” adding that security in the region “should be achieved by the countries themselves.”
The week ahead: markets turn to Fed meeting, inflation, and GDP. The October FOMC meeting kicks off tomorrow, with markets pricing in over a 90% chance of policymakers voting to hold rates steady. At their last meeting in September, the committee raised rates by 25 bps for the first time in three years, to a target range of 3.75%-4.00%. Market odds for a rate hike in December have risen to 91% following a hawkish Fed dot plot last month and sustained energy-driven inflation concerns. On Thursday, PCE data will be released, expected to show prices increased 0.5% MoM in September, up from 0.3% in the prior period. Third-quarter GDP figures will also be released on Thursday, with forecasts predicting the US economy grew 3.2% QoQ.
