Category: Market Action

Bond market excitement continued:

US longer-dated Treasury yields rose on Friday, extending their recent sharp move higher after more upbeat economic data reinforced concerns about inflation.

The 30-year US bond yield hit a fresh 22-year high and the benchmark ⁠10-year yield ​reached a fresh 19-year high.

Yields have jumped recently on persistent worries about higher inflation.

New orders for key US manufactured capital goods increased more than expected in August and the previous month’s figures were revised sharply higher, signaling another quarter of robust growth in business spending on equipment ​amid an AI buildout.
…
The bullish data has driven up expectations for another interest-rate increase by the Federal Reserve. Traders now see a more than 64% chance of another hike when the US central bank next meets in October, according to CME Group’s FedWatch Tool. That expectation was around ‌55% a ​week ago.
…
The yield on the 30-year bond was last up 2.4 basis points at 5.486%. It reached 5.5319%, the ‌highest since 2004.

The yield on the benchmark US 10-year Treasury note was last up 0.3 basis point at 5.165%. ​It earlier reached 5.2297%, the highest since 2007.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 30.3 basis points.

The two-year US Treasury yield, which ​typically moves in step with interest rate expectations for the Fed, was down 3.5 basis points at 4.86%.

The TXPR price index was down 52bp today. Volume was 707,980, near the median of the second-highest volume of the past 20 trading days.

CPD was down 71bp to 13.95, on volume of 136,110 (consolidated: 332,330), highest of the past 20 trading days.

ZPR was down 31bp today on volume of 139,470 (consolidated: 423,470) above the median of the past 20 trading days.

There’s some hawkish talk from Fed governors:

The U.S. central bank will likely need to raise interest rates again to curb unacceptably high inflation, two Federal Reserve policy-makers said on Thursday.

“Returning inflation to 2 per cent is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,” Philadelphia Fed President Anna Paulson told a conference at her regional bank.

Paulson, a voting member of the central bank’s rate-setting Federal Open Market Committee, described inflation as “stubbornly elevated” and said “if conditions evolve as I expect, some modest further tightening may be warranted.”

Speaking in London, New York Fed President John Williams also suggested tighter monetary policy is coming. Citing Fed policy maker projections released last week that penciled in a rate increase, he said “it’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it.”

Paulson and Williams spoke just over a week after the Fed raised its benchmark interest rate by a quarter of a percentage point, to the 3.75-to-4.00-per-cent range, in an effort to curb high inflation that threatens to undermine public confidence in the central bank’s ability to reach the 2-per-cent target.

The bond market continued its weakness:

US and Iranian leaders exchanged barbs this week at the UN General Assembly. Brent crude prices rose ​over 3% to nearly US$107 per barrel after a Houthi missile attack on ‌Saudi Arabia revived fears of supply disruptions.
…
The U.S. 30-year Treasury bond yield reached its highest since 2004. The yield on the benchmark U.S. 10-year Treasury climbed to 5.21% by late afternoon, up 10 basis points and its highest since early this century. The Canadian 10-year yield was up about 5 basis points to near 4%, its highest since 2023.
…
The S&P 500 declined 0.02% to end the session at 7,704.13 points. The Nasdaq edged up 0.01% to 26,939.37 points, while the Dow Jones Industrial Average declined 0.31% to 51,349.98 points.

The ​TSX ended down 44.97 points, or 0.1%, at 35,706.46, its lowest closing level since September 16.

The Canada five-year finished the day at 3.72%.

Fun day for bonds:

The world’s most influential bond yield surged decisively above 5 per cent on Wednesday as more signs emerged of growing inflationary pressures in the U.S., sending stocks and fixed income portfolios tumbling.

The benchmark U.S. 10-year yield briefly rose to near 5.14 per cent, back to where it was in 2007 before the global financial crisis caused yields to crater. In late afternoon trading, it was fetching 5.10 per cent, up 16 basis points for the session.

That was still a large daily move for the bond market, and had Canadian bond yields surging as well. The Canada five-year yield, closely followed for its impact on fixed mortgage rates and GICs, hit its highest since 2024.

Bond yields were higher across the curve – from short-term tenures to long term – an indication that traders were bracing not only for rate hikes but also for inflationary pressures to linger. That also meant investors widely suffered declines in bond portfolios – prices move inversely to yields.

All three major U.S. equity indexes weakened, with losses for Canada’s S&P/TSX Compositive Index – heavily weighted towards materials and interest-sensitive stocks that tend to weaken when yields rise – outpacing Wall Street. It closed down 584.18 points, or 1.6 per cent, marking its biggest one-day decline since June 5.
…
Adding to the hawkish tone, Fed Governor Michael Barr said that the central bank took an important step last week to “recalibrate” short-term borrowing costs to bring down inflation, and signaled ‌that further rate ​hikes will likely be needed.

Fed funds futures traders are now pricing in a 66 per cent chance of an October rate hike, up from 53 per cent a day earlier.
…
The U.S. ⁠Treasury Department also drew very weak demand for a US$70-billion 5-year note auction amid the bond market selloff, with the notes selling at the highest yield ​at an auction since 2007.
…
The Dow Jones Industrial Average fell 0.68 per cent and the S&P 500 dropped 0.75 per cent. The Nasdaq Composite was down 1.13 per cent, a sharp reversal after hitting a record high on Tuesday.

Canada five-years at 3.68%! Who’da thunk it?

PerpetualDiscounts now yield 5.80%, equivalent to 7.54% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.38% on 2026-09-16. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at the 215bp reported September 16.

The FOMC tightened today:

The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote:

The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.

… and the dot plot suggests there will be more to come … and not just for a little while:

Equities didn’t like it:

Before the Fed’s announcement, the three major U.S. stock indexes had ‌been gaining ground, ​with a chips rebound, giving the tech-heavy Nasdaq ‌the edge. Earlier in the session, robust U.S. retail sales data suggested consumers were still spending, despite an affordability squeeze due to rising ​prices, particularly at the gasoline pump.

The war in the Middle East expanded ⁠as Saudi warplanes pounded Yemen while Iran-backed Houthi fighters launched drones and missiles at Saudi cities in a signal ⁠of Iran’s extended reach in the widening conflict.

Even so, oil prices dipped after reports that Saudi Arabia was offering additional crude cargoes via Oman eased concerns about supply ​disruptions. Crude is up over 20% in the last 2-1/2 weeks. Front-month WTI settled down 3.2% and Brent crude settled down 2.7%.

The Dow Jones Industrial Average fell 631.33 points, or 1.21%, to 51,461.78, the S&P 500 lost 33.59 points, or 0.44%, to 7,552.14 and the Nasdaq Composite lost 3.15 points, or 0.01%, to 25,978.43.

The S&P/TSX Composite Index ended down 90.8 points, or ⁠0.3%, ​at 35,491.27, its lowest closing level since July 31.
…
Six of the 10 major TSX sectors notched gains, led by a 1.9% advance ⁠for utilities as yields on ​long-dated bonds eased. Short-term U.S. bond yields, however, did rise following the Fed announcement and press conference, signaling a market pricing in more rate hikes ahead. Fed policy decisions having a greater immediate impact on the shorter end of the bond curve.

PerpetualDiscounts now yield 5.82%, equivalent to 7.57% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.41% on 2026-09-16. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 215bp from the 200bp reported September 9 .