Yields inch up ahead of FOMC meeting. Yields traded in the 2-3 bps range ahead of tomorrow’s Fed policy decision, before ultimately closing mostly flat across the curve. The 2-year yield closed 1bp higher at 4.66%, while the 10-year yield closed 1bp higher at 5.00%, the first time ending the session above the critical 5.00% threshold since 2007. Brent crude is currently trading around $105 per barrel. Meanwhile, equities fell on the surge in Treasury yields, with the S&P 500 closing just 0.45% lower, while the NASDAQ closed 0.78% lower.
Fed set for first hike in three years. The September FOMC meeting begins tomorrow, with a quarter-point rate hike over 90% priced into the market, a move that would mark the Fed’s first hike in more than three years, since July 2023. A quarter point hike would take the fed funds rate to a target range of 3.75-4.00%. Stronger-than-expected labor market data, combined with sticky inflation, has strengthened the case for a hike in recent weeks. Vail Hartman, strategist at BMO Capital Markets, comments that “It would be very difficult for the Fed to leave rates unchanged this week without eroding its inflation-fighting credibility.” Markets will be looking to the dot plot tomorrow for future movements, though Chair Warsh notably declined to submit a projection at the July FOMC meeting.
US, Oman Talk De-escalation. According to the Oman News Agency, Oman’s foreign minister and Marco Rubio, US Secretary of State had a phone call today to discuss how to de-escalate the US-Iran war. The US State department released a statement that Rubio “reiterated the United States’ commitment to ensuring that Iran never acquires a nuclear weapon and to freedom of navigation through the Strait of Hormuz.” He also voiced support for strengthening the US-Oman relationship going forward. There was a muted market reaction following the release as no final agreements have been made following today’s phone call.