Treasury Yields Hit 15-Year Highs

    • Treasury yields are once again higher this morning with the 10yr Treasury hitting its highest yield in 15 years. It’s currently at 4.32% which matches yields last visited in 2007. The 10yr yield has risen 42bps this week since it hit an intra-day low on Monday of 3.90%. The 2yr yield has risen “only” 20bps this week, so some curve re-steepening is occurring. As you might expect, equity futures are under pressure again as the prospect of ever-higher rates gets priced in.

     

    • With futures markets now pricing in a terminal rate of 5%, the last time that happened the S&P500 traded at a median 16.1 PE ratio. It’s currently trading at 18 so some continued selling seems inevitable.

     

    • With nothing on the economic calendar today the trading is likely to revolve around the tightening financial conditions domestically and across the globe as well as another round of Fed speak.

     

    • Four Fed officials will be speaking today with St. Louis Fed President Bullard speaking at noon. Speaking of Bullard, he’s in a bit of hot water over speaking to a private event hosted by Citigroup recently that was not open to the press or public. That’s typically a no-no at the Fed so we’ll see how that drama plays out in the days ahead. This will be the last round of Fed speak until the November 2 FOMC meeting so that leaves the market to focus on any new economic data.

     

    • In that regard the biggest releases next week will be the first estimate of third quarter GDP which is expected to post a robust 2.3%.  Current expectations for fourth quarter are looking for a more dramatic slowdown to 0.6% as the rapid series of rate hikes starts to work into the economy. The other big release next week will be the Friday Personal Income and Spending Report for September. The inflation series in that report will get the most attention. The PCE deflator is expected up 0.3% matching the gain in August and 6.3% YoY vs. 6.2% the prior month. Core PCE is expected up 0.5% vs. 0.6% in August with the YoY rate moving higher to 5.2% vs. 4.9%. So, no reprieve on the inflation outlook is expected for the September prints.

10-Year Treasury Yields Revisit 2007 Levels

 


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.40 5.62 5.62 6.00 6.50 6.65
0.50 5.39 5.60 5.51 5.90 6.40 6.50
1.00 5.39 5.56 5.46 5.85 6.29 6.35
2.00 5.55 5.39 5.78 6.20 NA
3.00 5.72 6.00 NA
4.00 5.95 NA
5.00 5.90 NA
10.00 NA

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Published: 10/21/22 Author: Thomas R. Fitzgerald