Last week we saw a significant move down across the curve, with 2-year rates dropping 22 basis points and 10-year rates dropping 24 basis points. SOFR markets are mostly unchanged, but there was a slight spike of a few basis points for Term SOFR. This change could possibly be a result of concerns surrounding month-end liquidity, but it’s hard to say. The big move was mid-week following the new CPI figures, which came in much softer than expected (MoM = 0.0%, Core = .02% vs. .03% expected). Fed chair Powell spoke somewhat dovishly later that day after the FOMC meeting, and they didn’t move rates. The new Dot plots show 1 cut in 2024 and 4 in 2025, which the markets seem to be mostly aligned with. PPI also came in softer than expected on Thursday, and rates drifted further down as a result. Employment numbers came in higher than expected, continuing the trend of a softening economy and labor market, which isn’t unusual heading into the summer. The 3-year Treasury auction was weak, but the 10- & 30-year auctions that followed were strong and traded through, showing a bit of a flight to quality.
This week we’ll have lots of Fed proxies out speaking, and the markets will be listening. This is typical for the week following a Fed quiet period. There won’t be as much economic data to watch this week other than Retail Sales tomorrow. With the big move in rates from last week, it’s a great time for borrowers in the short-term hedging markets to execute trades. If clients need to roll caps or other trades forward any time before November, now is a great time to execute with caps about 25 basis points cheaper. It may not be wise to wait with the hope that this becomes a trend; rather, take advantage of this seismic shift.
