H2C INDUSTRY INSIGHTS: CAPITAL MARKETS
Interest Rates and Economy
Week of November 20, 2023
Interest Rates & Economy
Interest Rate Update (1)
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The Federal Open Market Committee maintained its Federal Funds target rate of 5.25% - 5.50% at its November meeting. The CME Group is pricing in no policy changes at the December meeting, although another hike is not off the table(2).
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The 2-yr U.S. Treasury note (UST) decreased 31 bps month-over-month (MoM) to 4.88%. The 10-yr and 30-yr UST fell 39 bps and 35 bps MoM to 4.44% and 4.59%.
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The 2-yr MMD rate decreased 48 bps MoM to 3.14%. The mid- and long-end of the MMD yield curve have also fallen with 10-yr and 30-yr MMD at 3.01% and 4.07%.
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Overnight SOFR remained stable MoM at 5.32% while 1-Month Term SOFR is 5.33%, remaining near the highpoint since its inception(3).
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SIFMA rose to 3.81% after initially falling for three consecutive weeks in early October. Daily Mode VRDN rates fell 78 bps MoM to 3.29%.
Economic and Financial Update
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Inflation as measured by the Consumer Price Index (“CPI”) was unchanged in October for the first time since July 2022, resulting in the lowest annual rise in inflation in two years at 3.2%. The news alleviate some of the pressures on the Federal Reserve in raising interest rates in the near future(4).
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The healthcare sector added 58,000 jobs in October, in line with the prior twelve months’ average. Ambulatory health care services saw the most job growth, adding 32,000 in the month, followed by hospitals which added 18,000 jobs(4).
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Following the review of consultation feedback, Bloomberg announced the future permanent cessation of all tenors of the BSBY Index. It will take effect next year on November 15, 2024. Common replacement benchmark language cite, among other benchmarks, SOFR. SOFR has historically priced within a couple basis point of BSBY. However, it has priced 5 bps lower on average over the last six months(5).
Variance: 1-Month Term SOFR vs. 1-Month Term BSBY(1)
Wall Street Forecast (1)
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Rates and ranges as of November 17, 2023
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Source: CME Group’s FedWatch Tool as of November 17, 2023
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Note: Since Overnight SOFR began publication April 2, 2018 and 1-Month Term SOFR data since January 3, 2019
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Source: U.S. Bureau of Labor Statistics; Reuters
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Source: Bloomberg “Future Cessation of the Bloomberg Short-Term Bank Yield Index ‘BSBY’” released November 15, 2023
Additional sources: Bloomberg, Refinitiv/TM3
Key Rate Updates
Source: U.S. Department of the Treasury, Bond Buyer, Investment Company Institute, Bloomberg and Refinitiv/TM3. Data as of November 17, 2023.
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