Last week was a light one for economic data. Two- and ten-year Treasury yields increased about 22 BPS and 8 BPS, respectively. The Treasury auctioned $24B in 30-year bonds, which went poorly.
There weren’t enough bids to clear the market – primary dealers had to step in and buy 25% of the auction (10-11% is normal), which increased 10-year yield by about 13 BPS.
Moody’s put US Treasuries on a negative outlook from a credit perspective. Moody’s is the last AAA rating on our government debt, which seems to be in peril at the moment.
Powell notably came out and said, “The inflation battle has a long way to go.”
This week, there will be much more interesting economic data to watch.
Tuesday, we have Consumer Price Index (CPI) data coming out, followed by Retail Sales and Producer Price Index (PPI) on Wednesday. The Philadelphia Fed outlook and Housing Starts numbers are also worth watching later in the week
The debt ceiling is Friday, November 17 at midnight. There’s a real possibility of a government shutdown on Friday. It will be a challenge for anything to pass in the House that would prevent this from happening.
It’s also important to note that a couple weeks of movement doesn’t necessarily make a trend. We should still generally be looking at a higher rate environment moving forward.
Projected rate cuts are now pushed out to next summer (June/July). There’s still a significant inversion for forward starting hedges over the next 18 months.
The Chinese government is requiring their banks to buy Chinese currency. They’ve been selling off US debt to free up capital to be able to do so. This is a trend we expect to continue.
Commercial mortgage-backed security (CMBS) issuance is still limited. A couple more securitizations should go through by the end of the year, with coupons averaging around 7.5-8% and the large majority being 5-year deals.
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