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Market Update

Rates drop as market reacts to Fed taper discussions and Delta variant concerns

August 23, 2021


Minutes from the Federal Reserve July policy meeting showed talk of reducing bond purchases by the end of 2021. The COVID Delta variant continues to drive concern, with the Biden administration officially recommending booster shots for fully vaccinated individuals.

Economic outlook

Federal Reserve minutes released on Wednesday showed a majority of Federal Reserve officials “judged that it could be appropriate to start reducing the pace of asset purchases this year.” Other officials indicated early 2022 as the best time to begin tapering. Markets reacted with concern for slowing growth amidst mixed economic data. On Friday, Dallas Fed President Rob Kaplan said he is “watching very carefully” how the Delta variant will impact the U.S. economy. Just last week, Kaplan stated support of tapering beginning in October, but he indicated willingness to change his views on policy if economic growth slows.

On Wednesday, top U.S. health officials confirmed booster shots will be offered to all Americans beginning next month. The Biden administration released its plan for booster shots amidst pushback from World Health Organization officials. COVID cases continue to rise across the country as the Delta variant weighs on markets.

Treasury yields fell throughout the back-half of the week, as global COVID concerns have increased risk aversion in the market. The 10-year treasury yield dropped 3-4 basis points last week and is 10 bps lower over the last 10 days. As rates fall, corporates continue to hedge their long-term exposure of future fixed-rate debt issuances, taking advantage of the current market to lock in lower long-term rates.

(Related insight: Read “Managing interest rate risk on future debt issuances.”)

Foreign currency

The U.S. dollar had a strong week, with the U.S. dollar currency index rising to its highest level since November 2020. Global concerns for a delayed economic recovery amidst the Delta variant have brought the safe-haven dollar higher. Meanwhile, other currencies fell, as CAD dropped to a six-month low amidst plunging oil prices, while AUD and NZD were down near nine-month lows.

(Related insight: Read “Six key steps to implementing an operational FX program”)


West Texas Intermediate (WTI) crude futures fell to its lowest level since May amidst fears of slowing demand and a strong U.S. dollar. After a strong start to the summer, buoyed by a surge in demand coupled with producers capping supplies, oil has fallen more than 18% from its July 6 high of $76.98. Concern for the spread of the Delta variant tamped down market demand through the back half of the summer. A strong U.S. dollar also contributed to lower oil prices, with dollar-denominated oil becoming more expensive for foreign purchasers.

Looking ahead

All eyes will be on the Jackson Hole Economic Policy Symposium, scheduled to begin on Thursday. Fed Chair Jerome Powell will give a virtual speech on Friday at 10 a.m. ET. Consumer spending and core PCE price index numbers will also be released on Friday.

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About the author


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

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