A volatile week ends with rates significantly lower
Summary
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.
*3/13/2023 rate as of 11:00 AM EST
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.
Looking Ahead
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.
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