(Bloomberg) — A renewed bout of selling hit the entire Treasury curve, with factory data offering little comfort on the inflation front and a slew of companies considering bond sales before this week’s Federal Reserve decision.
(Bloomberg) — A renewed bout of selling hit the entire Treasury curve, with factory data offering little comfort on the inflation front and a slew of companies considering bond sales before this week’s Federal Reserve decision.
As Wall Street gears up for the Fed’s 10th consecutive rate hike since March of last year, around 10 issuers are contemplating moving forward with debt sales in the US investment-grade primary market Monday. Borrowers are anticipated to pile in during the coming weeks as more companies exit earnings blackouts, with Meta Platforms Inc. said to be looking to raise $7 billion.
These offerings tend to represent a double-whammy for Treasuries, which would cheapen amid competition from new debt and as underwriters sell government notes to rate-lock the issue for corporate buyers. Another factor dragging down bond prices Monday is the stabilization in sentiment after JPMorgan Chase & Co. decided to acquire failed lender First Republic Bank.
To Krishna Guha at Evercore, trading suggests little or no spillovers from that situation, which is consistent with the notion that there is no surprise here and the market is willing to distinguish between First Republic and other financial firms.
‘Clears the Decks’
“The decisive action by regulators clears the decks for the Fed to press ahead and raise rates at its May meeting,” Guha noted. “Our base case is that the economy cools from here, the Fed will not hike further after May and the next move will be a cut in December.”
Swap traders slightly upgraded the odds the Fed will increase its policy rate by a quarter-point Wednesday. The two-year yield climbed as much as 16 basis points to 4.16% Monday. The rate on the 10-year note rose at a slower pace to around 3.5%. Equities posted small moves after notching two straight months of gains, with traders continuing to sift through a batch of corporate results.
Stock market investors holding on to hopes that the Fed will cut rates in the second half could be disappointed later this week, according to Morgan Stanley’s Michael Wilson.
“If the message delivered at this meeting is more hawkish, it could provide a near-term negative surprise for equities,” Wilson wrote in a note.
Andrew Brenner at NatAlliance Securities says the question investors will need to ask themselves after Powell’s conference is whether there is a pause coming after Wednesday — and whether that would be a “hawkish pause or a real pause.”
“The Fed will tell the markets that there is no expected lower rates coming at the end of the year, but markets will not believe them, as the Fed longer-term outlook and predictions have been awful,” Brenner noted. “We still see two rate cuts by January.”
Key events this week:
- US factory orders, revised durable goods, light vehicle sales, Tuesday
- US ADP payroll data, Wednesday
- Federal Reserve Chair Jerome Powell holds news conference following the central bank’s interest-rate decision, Wednesday
- US initial jobless claims, international trade in goods and services, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
- US unemployment, non-farm payrolls, Friday
- St. Louis Fed President James Bullard at Economic Club of Minneapolis, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 11:55 a.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.5% to $1.0967
- The British pound fell 0.6% to $1.2492
- The Japanese yen fell 0.8% to 137.36 per dollar
Cryptocurrencies
- Bitcoin fell 3.9% to $28,208.44
- Ether fell 3% to $1,835.55
Bonds
- The yield on 10-year Treasuries advanced 13 basis points to 3.55%
- Germany’s 10-year yield declined 15 basis points to 2.31%
- Britain’s 10-year yield declined eight basis points to 3.72%
Commodities
- West Texas Intermediate crude fell 1.9% to $75.29 a barrel
- Gold futures fell 0.5% to $1,989.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael Mackenzie, Vildana Hajric, Carly Wanna and Isabelle Lee.
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