Investors Await More Treasury Supply and Fed Speak

Investors Await More Treasury Supply and Fed Speak

• Treasury prices are higher in early trading as investors await more Fed Speak and the 10yr Treasury auction results this afternoon. While the moves are tentative so far, it’s interesting that much of the sharp rally from last week continues to hold, even with additional supply coming to market. Presently, the 10yr note is yielding 4.56%,  up 1/32nd in price, while the 2yr is yielding 4.93%,  unchanged on the day.

• The light calendar continues with the two primary drivers today being both Fed Speak and Treasury supply. Yesterday, the US Treasury auctioned 3yr notes with little problem. Today, it’s the 10yr’s turn with auction results at 1pm ET. A small concession into the auction is the expectation, but the rally from last week is not going away quietly. If the new supply is put away with solid demand it will bode well for the rally to stick. Be on the lookout for how the afternoon trades following the auction results.

• The Fed Speak was heavy yesterday and will continue today with Chair Powell due to address the Fed’s Centennial Division of Research and Statistics Conference this morning. It’s expected to be a brief introduction to the conference with no Q&A so it might be a non-event in respect to monetary policy observations. Meanwhile, yesterday’s speakers could be characterized as cautiously optimistic but with fears that inflation could turn higher if vigilance is not maintained. There was no discussion of declaring the hikes over.

• Fed Governor Bowman was one of the speakers yesterday and she continued with her recent theme that another rate hike would be necessary to get inflation back to 2%, in her opinion. That’s been a common refrain from Bowman recently, so it didn’t spook the market. She specifically mentioned that the impact of higher energy costs could be a problem which was interesting given that on the day the energy complex was leading the market lower and had practically retraced the summer increase.  Gas prices, which we noted on Monday, are back to March levels so the summer surge in energy costs appears to be pausing, if not over.

• It was clear, however, from the Fed speak so far this week inflation remains the number one focus with little concern so far about the slowing labor market. That heightens the attention to next Tuesday’s CPI read for October. The overall is expected to be up 0.1% vs. 0.4% in September as some of the decrease in energy costs gets reflected in the numbers. Given a hot 0.5% MoM figure from last year rolls off the YoY pace is expected to dip from 3.7% to 3.5%. The core rate, however, is expected to increase 0.3% for the third straight month with the YoY pace unchanged at 4.1%. If that comes to pass it should continue the debate between the uber-hawks pressing for another hike, while moderates press for a continued pause. Sounds like Ground Hog Day, doesn’t it?

West Texas Intermediate Oil – Price Returning to Year Ago Levels