Chasing Yields

Kevin Warsh will be sworn in as the 17th chair of the Federal Reserve this Friday, May 22, in a White House ceremony — and bond investors have good reason to pay attention.

If markets were hoping for a quiet Wednesday morning, today’s Producer Price Index data had other ideas.
The April PPI figure surged to 1.4% month-on-month — a substantial overshoot compared to the forecasted 0.5% and nearly double the previous month’s reading of 0.7%.

Quarterly earnings reports have anchored market transparency for decades, but that may be changing.

As producers and consumers pay higher prices for goods and services, not only is this a painful reality that the Fed will not cut the Fed Funds Rate anytime soon, but it also increases the likelihood that inflation is out of control or not fleeting.

The current geopolitical environment is putting unusual pressure on U.S. Treasuries. Traditionally, geopolitical crises trigger a “flight to safety,” pushing Treasury prices higher (and yields lower).

Concerns about private equity investing escalated this month when Blue Owl Capital, a private equity management firm, restricted investor withdrawal requests from its private credit fund (OBDCII) after selling $1.4 billion in assets to meet those demands.

As we start an abbreviated week in the market, investors will be closely monitoring the release of the FOMC minutes for insights into the Federal Reserve’s monetary policy stance.

Now that the President has nominated Kevin Warsh to be Chairman of the Federal Reserve, the discussion begins about the influence he will have on the Board and the direction of interest rates in the coming months.

In addition to this week’s ADP private-sector employment report for January, traders will be closely monitoring an announcement from the Treasury Department regarding the potential increase in future auction sizes, particularly for long-term borrowing.

This week, the Federal Reserve Committee elected to keep the Fed Funds Rate the same. Chairman Powell indicated there was broad approval from the Board to leave rates neutral.

As the new year unfolds, investors face a dizzying array of choices. The AI boom continues to dominate headlines. Cryptocurrencies promise revolutionary returns.

Job Openings and Labor Turnover Survey (JOLTS) numbers were released this week from the Bureau of Labor Statistics indicating that there were 7.15 million jobs opened at the end of November.