A renewed bout of selling hit the Treasury market, with factory data bringing little comfort on the inflation front and a handful of companies offering bonds ahead of the Federal Reserve decision.

As Wall Street gears up for the Fed’s 10th consecutive rate hike since March of last year, several borrowers are piling in after exiting their earnings blackouts, with U.S. investment-grade issuance hitting over US$22 billion in one of the busiest sessions of 2023. Among notable firms tapping the market: Meta Platforms Inc. is looking to raise US$8.5 billion, Hershey Co. priced US$750 million in bonds and Comcast Corp. launched a US$5 billion deal. 

These big offerings usually represent a double-whammy for Treasuries, which tend to cheapen amid competition from new debt and as underwriters sell government notes to rate-lock the issue for corporate buyers. Another factor weighing on bond prices Monday was the stabilization in sentiment after JPMorgan Chase & Co. decided to acquire failed lender First Republic Bank.

To Krishna Guha at Evercore, trading suggests little or no spillover from that situation, which is consistent with the notion that there’s roughly no surprise here and the market would be willing to distinguish between First Republic and other financial firms.

‘CLEARS THE DECKS’

“The decisive action by regulators clears the decks for the Fed to press ahead and raise rates at its May meeting,” Guha noted. “Our base case is that the economy cools from here, the Fed will not hike further after May and the next move will be a cut in December.”

Swap traders slightly upgraded the odds that the Fed will increase its policy rate by a quarter-point Wednesday. Treasuries sold off across the curve, with yields on 30-year bonds climbing the most since September and those on 10-year notes approaching 3.6 per cent. Equities were little changed after notching two straight months of gains as traders waded through a batch of corporate results.

Stock investors holding on to hopes the Fed will cut rates in the second half could be disappointed this week, according to Morgan Stanley’s Michael Wilson.

“If the message delivered at this meeting is more hawkish, it could provide a near-term negative surprise for equities,” Wilson wrote in a note.

Andrew Brenner at NatAlliance Securities says the question investors will need to ask themselves after Powell’s conference is whether there’s a pause coming after Wednesday — and whether that would be a “hawkish pause or a real pause.”

“The Fed will tell the markets that there is no expected lower rates coming at the end of the year, but markets will not believe them, as the Fed longer-term outlook and predictions have been awful,” Brenner noted. “We still see two rate cuts by January.”

Key events this week:

• U.S. JOLTS job openings, factory and durable goods orders, Tuesday
• ADP employment, S&P global U.S. services PMI, ISM services, Wednesday
• Federal Reserve Chair Jerome Powell holds news conference following rate decision, Wednesday
• U.S. initial jobless claims, trade balance, Thursday
• European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
• U.S. unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 fell 0.1 per cent
• The Dow Jones Industrial Average fell 0.1 per cent
• The MSCI World index fell 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro fell 0.4 per cent to US$1.0973
• The British pound fell 0.6 per cent to US$1.2492
• The Japanese yen fell 0.9 per cent to 137.50 per dollar

Cryptocurrencies

• Bitcoin fell 5.1 per cent to US$27,840
• Ether fell 4.3 per cent to US$1,812

Bonds

• The yield on 10-year Treasuries advanced 17 basis points to 3.59 per cent
• Germany’s 10-year yield was little changed at 2.31 per cent
• Britain’s 10-year yield was little changed at 3.72 per cent

Commodities

• West Texas Intermediate crude fell 1.4 per cent to US$75.70 a barrel
• Gold futures fell 0.5 per cent to US$1,988.70 an ounce