Breaking News

Treasury Market Summary: angst over the banking sector continued to keep the markets volatile as another wild and crazy week came to an end. Wall Street managed to close with gains, reversing overnight losses after a scare on UBS which was reportedly being investigated by the U.S. DoJ. Bargain hunting and expectations for Fed rate cuts ahead, as reflected by the drop in Treasury yields, helped stabilize equities. The S&P 500 advanced 0.57%, with the Dow up 0.41% and the NASDAQ 0.31% higher (European bourses finished with losses of over -1%, but recovered from better than -2% declines). Treasuries remained well bid but the bounce in risk appetite took some of the haven demand out of the market. Nevertheless, all maturities are again under 4%. The wi 2-year finished down 7 bps to 3.72%, but was over 22 bps lower overnight to hit 3.56%. The 10-year was 6 bps at 3.369% but was as low as 3.304%. This is a third straight week of richening in yields after six consecutive weeks of cheapening. The curve has bull steepened to -39 bps, but was as high as -27 bps earlier, and is in from -105 bps on March 8. The DXY dollar index again found some footing and rebounded to 103.100 from an overnight nadir of 102.503, catching a bid against its G3 peers. Gold lost some of its luster on reduced angst and the firmer buck, falling -0.85% to $1976 after challenging $2000. Oil skidded-1% lower to $69.21.

Treasury readout from FSOC: "the U.S. banking system remains sound and resilient." That does not tell us much at all, but would analysts have wanted an announcement of problems? However, after the confusion on the various comments from Treasury Secretary Yellen during the week, especially on deposit insurance, a little more clarity was hoped for. The meeting of FSOC, the Financial Stability Oversight Committee that includes the Treasury and Fed officials, along with the OCC, FDIC, SEC, CFTC, and other regulators (a total of ten voters), was called by Treasury Secretary Yellen to discuss the "efforts to monitor financial developments." Today's announcement of soundness and resilience has been the general message from officials, including monetary policymakers who said that view was the reason why a 25 bp hike was effected on Wednesday.

Action Economics Survey results: there has been no want for anxiety since the SVB, Signature Bank failures. And the resulting increase in uncertainties on the macroeconomy from the tightening (and expected tightening) in credit conditions has made for a variety of outlooks on the FOMC’s rate path. Fed funds futures continue to push against the Fed’s base case of no rate cuts this year and are showing nearly 100 bps in easing by the end of December. On the other hand, this week’s Survey Medians show another quarter point increase in May to 5.125% and then no change in June or July. That is more consistent with the FOMC’s tightening this week, with the dot plot showing an additional 25 bp hike. However, Survey estimates ranged from no change in rates to 50 bps more through July. Credit conditions will continue to be monitored in the week ahead with the Fed’s H.3, H.4.1, H.6, and H.8 releases back in the spotlight. Data is thin in the upcoming week and includes confidence reports which will be closely monitored to assess the degree of stress. The Survey Medians show a decline to 101.0 in the March Consumer Confidence report, with the final print from the University of Michigan dipping to 63.1. Income and consumption are also on tap. The following week’s nonfarm payroll report looks to show ongoing tight labor market conditions with an increase of 238k projected.

Good news from the NY Fed's underlying inflation gauge (UIG). It dipped -0.3% to 4.75% in February from 5.1% in January for the "full data set." It is down from the 6.32% peak from June of last year and is the lowest since October 2021. The "prices only" index also slipped -0.3% to 3.92%, the lightest since May 2021, and had dropped from the 6.04% record high last March. Also, the 12-month measure for February CPI decelerated to a 6.04% y/y pace from 6.41% y/y in January, the slowest since September 2021. It was at a high of 9.059% last June. Trend CPI was estimated in the 3.9% to 4.8% area, little changed from January but both the high and low ends are down 0.3% versus the prior month.