Last week, 2-year and 10-year Treasury yields rose 13 and 20 BPS, respectively. Bloomberg’s World Interest Rate Probabilities model now predicts 2 rate cuts with a 50/50 chance of a 3rd by 12/18. The market seems to be getting back to the “higher for longer” stance (or at least closer to it).
There was another big selloff last week, and 2-year Swap rates rose to the highest levels since November of last year, before the market began pricing in upwards of 6 cuts. ISM services numbers came in relatively light Monday, but we had the first expansionary manufacturing numbers since October of 2022.
Friday’s nonfarm Payroll release was a blowout, coming in at 303,000 vs. 214,000 expected. Economists will tell you the Fed is more focused on inflation than jobs, but employment numbers like this may also discourage the Fed from cutting rates quickly.
This week’s focus will be on inflation data. CPI on Wednesday is expected to increase by 0.3%, but there’s a lot of talk about this figure coming in hotter than expected. The PPI release will follow on Thursday. Both data points will be very telling about rates and the anticipation of cuts.
There’s a very bearish tone in the Treasury markets with rate cuts getting priced out, heavy TSY issuance continuing, oil prices going up, and political turmoil not improving in the Middle East & Russia. Another round of elevated CPI/PPI figures could keep moving rates up, and we already blew through what we believed to be resistance levels for the 2’s & 10’s last week.
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