Sector Update

June 21, 2021

Treasury yields ended last week mixed in a definitively flatter move. Short and intermediate yields moved markedly higher while longer maturities declined. Last week we said the Fed’s upcoming policy announcement could be the catalyst for volatility. It didn’t fail to deliver.

Movements in yields, even from minute to minute, were sharp at times and left me scratching my head more than once. Unlike this time last year, when the Fed wasn’t even “…thinking about thinking about raising rates”, the Fed was not as dismissive last week.

In Chair Powell’s own words, “You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like,” followed with, “I now suggest that we retire that term, which has served its purpose.”. Judging by movements in longer yields, it looks like the market still trusts the Fed’s assessment of inflation pressures being transitory. Judging by movements in shorter yields, it looks like the market needed to adjust for the potential of earlier rate-hikes and tapering.

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Today – Yields higher, curve steeper, stocks rebound

Yields end week mixed – 10-Year flat while 2- and 5-year maturities soar

10- and 5-year yields break higher, 10-year virtually unchanged

Yield Curve Shape – 2s-5s and 2s-10s still relatively steep, break below recent ranges

Sector Commentary (click on links for more in-depth look)

What We’re Reading

Market Today | Daily

Weekly Recap | Weekly, Friday

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

MBS Prepay Commentary (June) | Monthly, 5th business day

SBA Prepay Commentary (June) | Monthly, 10th business day

WSJ: Long-Dated Treasurys Win Favor on Receding Inflation Bets

“A key change highlighted by Fed Chairman Jerome Powell came in his comments on labor markets and the high number of people who had retired during the Covid crisis, shrinking the size of the labor force. This means the economy is likely to hit full employment sooner than expected: High unemployment has been the Fed’s justification for allowing inflation to run hot in recent months.”

Bloomberg: Kaplan, Dalio, Bullard Echo Call for Fed Pivot Toward Inflation

Dallas Fed President Robert Kaplan said he favors starting the process of tapering the central bank’s ongoing bond purchases “sooner rather than later,” while his counterpart from St. Louis, James Bullard called it “appropriate” that policy makers last week opened the taper debate.”

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