Treasury’s Big Move Leaves the Market Unimpressed
Rate-hike expectations are inching higher ahead of the August CPI and PPI data.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
We’re taking a quick break from investor conference presentations to discuss the Treasury’s announcement that it will step up its buy-back of government debt to $6 billion, triple the normal level and an increase from the “at least” $4 billion the Treasury said it would purchase in mid-August. Yet, Treasury yields ticked up following the announcement, hitting a high of 4.841% in the process before giving back some of that lift.
As we’ve seen more than a few times with corporate earnings in recent months, the market was expecting Treasury Secretary to go even bigger. Some estimates pegged the stepped-up buy-back near $10 billion, and the “I am the house now” comment from Bessent likely helped lift market expectations.
Meanwhile, Brent crude has surpassed $101 per barrel, and the probabilities for a Fed rate hike next week have ticked higher on the CME FedWatch tool. As of now, that probability stands at 62.4%, up from 44.4% a month ago. We’ll also note the market expectation for a second rate hike before the end of January 2027 is on the rise. The current view depicted on the CME FedWatch tool is a 38.6% probability the Fed Funds rate will be at 400-425 basis points (bps) by the end of January vs. 33.3% for 375-400 bps and the current level of 350-375 bps.
As we get ready for the August PPI report Thursday and August CPI Friday, we’re resharing our table of key economic data over the last several months. As you can see rather plainly in the table, which does not capture the latest move higher in oil and related prices, there is little question the Fed’s focus needs to be on inflation.
Ahead of those back-to-back inflation reports, we exited the Portfolio’s position in Builders FirstSource (BLDR) on September 1. Should the data come in hotter than the market expects (and there is reason to think that is possible), and if we see market expectations for more than one rate hike step up in a big way, we’ll adjust our investment mosaic as needed.
