Market Commentary
October 16, 2023
Bit of a roller coaster ride in the bond market last week. We started off with a holiday on Monday and a 10-year yield that was sent into orbit the week before almost reaching 4.80. Then the bond market rallied early in the week on dovish comments from Fed Vice Chair Jefferson. He made statements like “we are in a position to proceed carefully in assessing the extent of any firming that may be necessary” and “real long-term Treasury yields have risen significantly” to which he further stated he is “cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I asses the future path of policy”. In a nutshell, he is aware of long-term yields and their impact of slowing the economy and may cause him to adjust his approach to monetary policy. Great news and the 10-year dropped about 20 basis points in yield to about 4.60 which is a pretty big move.
On Wednesday we had ok PPI numbers which suggest core inflation (excluding the volatile food and energy sectors) was at 2.5% for 3 months vs 3.4% over 12 months, so moving in the right direction. However, the Fed also had yet another bond auction. The 30-year treasuries were awful and the bond market shot up 12 basis points. On Thursday though we got the CPI report, a biggie for the Fed. Headline inflation was slightly higher than expected, but that includes the volatile food and energy sectors as well (gas prices was the culprit here). The core CPI though showed continued disinflation with 3.1% for 3 months vs 4.1% over 12 months. By Friday the 10-year closed around 4.61.
Overall, I would put the week as a slightly positive one. The probability of a rate hike in November decreased a little as well to just under 9%. The expected rate will go down an eighth this week as the 10-year weekly average settled at 4.64.
Have a great week!