On Monday, the US Treasury announced its preparations for a quarterly refunding update scheduled for Wednesday. This pivotal update is set to unveil the extent of bond supply the US government intends to inject into the market in the upcoming quarter.
After witnessing a year and a half dominated by the influential decisions of the Federal Reserve, investors have begun diversifying their focus towards additional determinants and their varying implications for the stock market. Although third quarter earnings have initiated on a positive note, this surge has failed to stimulate notable movement in major stock averages. Correspondingly, the escalating tensions in the Middle East have spurred extensive discourse, yet their ramifications on the stock market remain ambiguous.
This shift in attention underscores the paramount significance of the US Treasury’s forthcoming announcement. The scrutiny lies in dissecting the potential repercussions of interest rate hikes surpassing 500 basis points, and how this could potentially shape the outlook for companies and the broader economy in the ensuing period.
A series of pivotal events are slated for this week, including a Federal Reserve meeting, Apple’s earnings report, and the release of the monthly jobs report. Investors are advised to remain abreast of these critical updates.
All eyes are poised on Wednesday’s quarterly refunding update by the US Treasury, with yields at the epicenter of market focus. Blake Gwinn, Head of Rates Strategy at RBC Capital Markets, emphasized the significance of this announcement, attributing it to the surge in yields witnessed in August. This emphasis is less about an unexpected government proclamation and more about its historical market impact.
Additionally, Callie Cox, US Investment Analyst at eToro, underscored the need for investors to assess how news developments this week and in the ensuing weeks might influence their perception of yields.
As the market currently factors in a 98% likelihood of the Federal Reserve maintaining interest rates during its meeting this Tuesday and Wednesday, investors have begun pricing in potential rate hikes for the December and January meetings. Consequently, the prevailing market query shifts towards evaluating the delayed effects of these rate hikes, rather than fixating on the extent to which the Fed will heighten them.
In the immediate term, market strategists anticipate that the repercussions from the bond selloff, colloquially termed the “pain trade,” are yet to subside. Consequently, the central narrative revolves around how any news development may steer the trajectory of Treasury yields.
While the Federal Reserve’s market-shaping decisions have predominantly been settled, investors are advised to vigilantly monitor any fresh developments this week, as the curtain draws on 2023.
Source: Yahoo Finance
