9/29/23 – Rising rates leaves fixed income market the most attractive since 2009
Bonds were under intense selling pressure for most of this week in what could only be described as a delayed reaction to the “higher for longer” message delivered by Chairman Powell last week. The old 2-year note (August 2025 maturity) traded as high as 5.19% before closing the week at 5.11%. The 2-year/30-year yield spread continues to dis-invert, closing the week at -35 basis points.
With the rise in rates, the average mortgage rate hit a 23-year high of 7.31%, up from last week’s high of 7.19%. The rise in the cost of financing a home will offer no solace to the beleaguered housing market.
Economic data for the week was mixed with the confidence surveys and housing data coming in below expectations, but the jobs market continued to show strength.
The various Fed members that spoke during the week echoed Chairman Powell’s comments from last week, saying that another rate hike may be possible while suggesting the possibility of a soft landing for the economy. Minneapolis Fed Governor Kashkari specifically said, “the resilience of the US economy has been surprising”, but he then said that he sees a 40% probability that the Fed will need to raise interest rates further.
Next week kicks off the final quarter of the year and next Friday the BLS will release the September employment report. The number of new jobs created, which has been below 200,000 for seven of the last eight months, is expected to again fall below 200,000. Despite the persistently low initial claims for unemployment insurance the consensus expectation is that only 168,000 new jobs will be added in the month.
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