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10 year Spikes above 1.50% As Powell Calls Inflation “Frustrating”

The 10 year T has jumped from 1.17% (August 3) to 1.56% this week. Two Fed officials came out today in favor of tapering bond purchases, adding to a growing chorus. Fed Chair Powell is having a rough few days: 2 resignation of Fed officials over conflict of interest allegations, Senator Warren announcing her opposition to his re-nomination for another term, and his statements to Congress that inflation is more than “transitory” Powell indicated that supply chain bottlenecks, once thought to be “worked out” by the end of 2021, will now persist well into next year and in some cases are worsening. As the Covid era accommodative policies are being removed, a benchmark for the 10 year T comes into focus: 1.85%. That was the 10 year T rate at year end 2019, before the Covid pandemic. Meanwhile, Treasury Secretary Yellen has indicated that the “x date” is estimated to be October 18. That is when the US Treasury will exhaust cash reserves and will be unable to meet it’s obligations without an increase in the debt ceiling. That increase is now fraught with political wrangling and no clear path is in sight. The countdown is already distorting the short term treasury market, as yields are spiking as buyers are unsure if the securities will be liquid at maturity. Rates will also be dependent on upcoming data releases: PCE this Friday, Employment next Friday. Capital markets may be affected if the debt ceiling remains unresolved into mid-October. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners