The Weekly Report

  • We are not quite certain that two weeks after adopting its taper plan it’s a good idea to have two Fed governors on the tape speculating whether it should happen faster. But, those two confusing observations took 3-yr yields back to unchanged on the day and 5s well above 1.20% this afternoon. The overnight/morning rally on the Austrian lockdown had the earmarks of being over done anyway, yet this afternoon’s selling has been too brisk. There is plenty of time to entertain changes in the taper once it’s been in progress more than a week.
  • Reactions to Fed speakers today actually demonstrate the point of the first and longest article this week. Looking at Fed rate paths in 2023 is more important than guessing what it will do when in 2022. First, the market is going to believe in 2-3 hikes next year regardless of what the Fed says this year. Second, what the Fed actually does decide next year will guide where rates need to be in later years. Although it’s complicated, looking at up to 8 rate paths helps define alternative strategies and asks investors to consider whether listening to the full FOMC is more important than following the hawks. For six years, the doves had the better rate calls, by the way.
  • Until today, markets are calm enough to collect broader trends through the first part of this quarter. Eight charts reflect on flows, technicals, inflation, etc.
  • The publication schedule called for a Covid-19 update this week, and the chart of new cases in Germany is among the worst we’ve ever published. The US has some outbreaks, but for now they represent a small increase in the overall numbers. Cases have undone about six weeks of progress. Also, updates on recent vaccination trends.
  • FHN Financial Municipal Strategist Abigail Urtz offers her observations why the new infrastructure law should reduce local government borrowing, offsetting much of the supply pressure in Treasuries in the next several years.
  • Current bids: 10s at 1.534%, 5s at 1.198%, and 30s at 1.908%.
  • The Weekly Report is scheduled to return December 3.

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