Yields nearly unchanged heading into midterm elections next week. Treasury yields ended nearly flat on the day despite a continued sell-off in equities, an uptick in oil prices, and upcoming US midterm elections. The 2-year and 10-year yield closed 1bp lower at 4.59% (down 9 bps on the week) and 4.93% (down 7 bps on the week), respectively. Meanwhile, equities extended their losses following disappointing technology earnings results, with the NASDAQ closing 2.86% lower today.
Fed officials speak in support of further tightening. Following this week’s FOMC decision to leave rates unchanged, Fed presidents Lorie Logan (voter), Alberto Musalem (non-voter), and Tom Barkin (non-voter) spoke in favor of additional rate hikes going forward. Logan stated, “It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases.” Meanwhile, Musalem called for “incremental adjustments made earlier,” which are “less disruptive than larger and abrupt actions taken later.” Barkin echoed these remarks, noting that “a gradual approach is a good way to go.” Futures markets imply a ~73% chance of a rate hike in December, and have a rate hike nearly fully priced in by January.
BOJ signals possible December rate hike. Bank of Japan Governor Ueda today declared that the Japanese economy had hit its long-standing goal of 2% underlying inflation, citing board consensus on price pressures. Despite cautioning that price pressures weren’t fully anchored at 2% relative to conditions in other economies such as the US, markets took Ueda’s signals as hawkish, which reinforced expectations of a rate hike at the December BOJ meeting. The comments came after the BOJ today voted to hold policy rates steady at 1.25%, following the quarter-point hike in September that put the policy rate at its highest level in three decades. Speaking about the pace of future hikes, Ueda cautioned that, “At every policy meeting, including the next one, we will assess the likelihood of our outlook materializing, as well as the risks, and make our decisions accordingly.”