Yields across the Treasury spectrum continue to rise, broaching the levels experienced last November. March’s retail sales data, which exceeded almost all public estimates, was the catalyst for yesterday’s continued sell-off.
The data again scaled back expectations as to when the first interest rate cut will occur; the markets are no longer pricing any reductions before November. At the start of the year, cuts beginning in March were fully priced in.
NY Fed President John Williams however offered some monetary policy optimism yesterday when he stated the central bank will likely start lowering interest rates this year “if inflation continues to gradually come down,” further stating “monetary policy is in a good place,” pointing to the enduring strength of the consumer and broader economy.
A WSJ headline read yesterday “Inflation weakens demand for US Treasuries” after last week’s lack luster demand of the $39 billion auction of the 10-year Treasury.
The Journal states the government is poised to sell an additional $360 billion or so of bonds in May, “an onslaught that Wall Street expects to continue no matter who wins November’s presidential election.”
Dow Jones states the prevailing view that the upcoming auctions will not fail [the inability to attract investors] but “some worry that a glut of Treasurys will rattle other parts of the markets, raise the cost of government borrowing and hurt the economy.”
As noted several times, some believe, including FRB Chair Powell, current fiscal spending plans are unsustainable and must be addressed to avoid a potential crisis.
The rising yields are starting to impact equities. In a volatile session, the S & P 500 gave up a 1% gain and fell about 1.20% as the mega technology shares came under pressure. The NASDAQ declined about 1.80%. Oil reversed early day losses to close nominally higher on geopolitical angst.
Last night the foreign markets were down. London was down 1.47%, Paris down 1.30% and Frankfurt down 1.39%. Chian was Japan down 1.94% and Hang Seng down 2.12%.
Futures are bifurcated as the Dow futures are up 0.30% and NASDAQ futures down 0.30%. The 10-year is off 17/32 to yield 4.68%.
