Treasury Yields Approaching Yield Highs

  • Some better news out of China overnight, with retail sales coming in above expectations, is continuing the down trade in Treasuries and with import/export prices this morning on the hotter side it is also adding to the pressure as attention turns to the FOMC meeting next week. Presently, the 10yr Treasury is yielding 4.32% while the 2yr is yielding 5.07%.


  • Much like most of the other inflation reports this week, August Import and Export prices came in a touch hotter than expected, but much of that increase was due to higher energy costs. Import prices rose 0.5% vs. 0.3% expected and 0.1% in July. The August increase was the largest since May 2022. The YoY rate is still negative at -3.0% vs. -4.4% YoY in July. Import prices ex-petroleum were unchanged matching expectations and July’s results and it shows the impact of higher energy costs which has flowed through all the inflation reports this week.


  • Export prices rose 1.3% easily beating the 0.4% expectation and the 0.5% July increase. The August increase was also the largest since May 2022. YoY export prices were down -5.5% vs. -6.8% expected -8.0% YoY in July. So, another inflation series that is bit hotter than expected with most of the increase coming from the energy complex. We’ll see how the Fed treats that next week, but we’re likely to hear the recent refrain of “higher for longer” and “more work to be done” as a result of the reports this week.


  • Speaking of the Fed, the FOMC rate decision on Wednesday becomes the market focus. We agree with the market consensus of a pause but with a continued hawkish tone and certainly keeping a rate hike for November firmly on the table. As for the updated dot plots, we think they will continue to show one more hike in 2023, same as the June forecast, but the 2024 100bps in rate cuts will likely be reduced to75bps as economic growth has come in better than expected and inflation remains somewhat sticky.


  • Later this morning (10am ET) the preliminary read on consumer sentiment will be released from the University of Michigan. Expectations are for a slight dip in sentiment and expectations as this survey seems to be more influenced by the price changes in gas. So, with gas prices at or near 12-month highs, it’s not surprising that we may see a dip in sentiment. Strangely, the inflation expectations are forecast to be unchanged at 3.5% 1yr out, and 3.0% 5-10yrs out. Again given the focus on gas prices in this survey, we expect some uptick in those inflation expectations and that will add some angst at the Fed as they want to keep inflation expectations “well anchored.”

US Import Prices – YoY Change

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.82 5.55 5.50 5.50 5.62 6.08
0.50 5.81 5.52 5.44 5.39 5.48 5.97
1.00 5.80 5.49 5.41 5.35 5.39 5.84
2.00 5.48 5.35 5.27 5.27 NA
3.00 5.22 5.21 NA
4.00 5.16 NA
5.00 5.12 NA
10.00 NA

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Published: 09/15/23 Author: Thomas R. Fitzgerald