A volatile week ends with rates significantly lower
Rates across the curve started this morning down significantly with the 2-year Treasury dropping nearly 90 basis points from a 15-year high earlier last week. The U.S. job market remains strong after the U.S. gained 311,000 jobs in February.
Rates jump following Powell’s comments before dropping to end the week
Federal Reserve chair Jerome Powell testified before Congress last week, noting that the Federal Reserve may need to raise rates higher than previously expected. Powell stated that “the latest economic data ha[s] come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.” Markets latched onto these comments as a sign that rates would stay higher for longer and reacted accordingly. The 2-year Treasury rose to 5.06%, its highest level since 2007, while the 10-year Treasury briefly crossed the 4% threshold.
After reaching those recent highs, rates plummeted this morning following the government takeover of Silicon Valley Bank and Signature Bank. The 2-year Treasury rate opened Monday morning down 95 basis points from last week’s high, while the 10-year Treasury opened 52 basis points lower. The market is currently pricing in a 35% chance that the Federal Reserve does not hike rates at next Wednesday’s meeting, after pricing in nearly an 80% probability of a 50-basis-point hike just five days ago.
Many corporations had been hesitant to lock in fixed rates as rates continued to rise and the outlook for short-term rates remained strong. With last week’s drops, many corporations are re-assessing whether to take their risk off the table and lock in these lower fixed prices.
U.S. adds 311,000 jobs in February continuing the trend of strong monthly jobs reports
The U.S. added 311,000 jobs in February, surpassing market expectations of a gain of 225,000. Average hourly earnings remained strong, increasing to $33.09, which represents a 4.6% increase over the last year. Leisure and hospitality continue to lead the way on job growth, adding 105,000 jobs in February. After seeing incredible job loss during COVID, the leisure and hospitality business is now back to only 410,000 lower than its February 2020 levels. Retail (+50k), government (+46k), professional and business services (+45k), and health care (+44k) were the other industries showing strong job growth in February.
While prior months have shown mostly positive news across the board, industries such as information (-25k) and transportation and warehousing (-22k) did lose jobs in February, indicating that cracks may be forming in the job market. The unemployment rate rose to 3.6% after dropping to 3.4% back in January.
All eyes are on the banking sector this week as markets wait to see the fallout of the government takeover of Silicon Valley Bank and Signature Bank.
Subscribe to receive our market insights and webinar invites
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.23-0059
Our featured insights
Fed meeting dominates a busy week
Wednesday brought us another FOMC meeting with the committee voting unanimously to keep the fed funds rate at the target range previously arrived at during July’s meeting (5.25%–5.50%). More notable than the expected outcome of holding rates steady, though, were the updates in the Fed’s Summary...
ECB hikes 25 bps while BoE keeps rates steady
The Bank of England (BoE) announced it would keep rates on hold at today's meeting, following 14 consecutive rate hikes that have taken borrowing costs to 5.25%, the highest level since 2007. A 25-basis-point rate hike was expected at the start of the week, but the release of August inflation...
A broken record: rising fuel prices drive major economic data readings
Soaring fuel prices drove major economic data releases in August. Oil prices reached 10-month highs last week amidst production cuts and continued demand. The uptick in prices highlights the importance of having robust hedging programs in place so your firm can be prepared for market movements.
U.S. dollar rallies under threat of additional rate hikes
The U.S. dollar continued its recent upward trend, as markets grappled with hawkish messaging from the Fed and the potential for a November rate hike.
A mixed bag of economic data causes constant recalibration in rates
Mixed signals from a variety of economic data reports caused investors to constantly adjust their bets that the Federal Reserve will refrain from hiking interest rates further, resulting in a whipsaw in yields and a relative rebound in equities.
Jackson Hole: higher for longer?
Powell underscores the potential for future interest rate hikes at the Jackson Hole Symposium. The downgrade of regional banks and decrease in existing home sales poses challenging borrowing implications for the average consumer.
5 things you need to know: managing interest rate risk after the Fed remains hawkish in 2023
With high levels of uncertainty looming over the U.S. economy, many organizations are taking a fresh look at their interest rate hedging strategies. Because of today’s highly inverted and irregular yield curve, it is still possible to lock in a lower fixed rate than the current floating rate....