Debt Debate
Democrats and Republicans recently reached a deal to expand the U.S. government’s borrowing limit by $480 billion, supporting the Treasury Department’s cash needs until early December. While the market eventually found some relief after this latest round of last-minute Congressional brinkmanship, the short-term reprieve sets the stage for another heated debate in November.
In 2011, S&P Global Ratings famously downgraded the long-term credit of the U.S. government from ‘AAA’ to ‘AA+’ with similar concerns; due to the current standoff, Fitch Ratings has indicated it may follow suit. Longer-term implications aside, it would be best for all parties involved and overall financial conditions to have the debt ceiling issue resolved sooner than later.
Despite strong labor demand, the weaker-than-forecast September jobs report may indicate that COVID-19 concerns are restricting a return to the workforce. Nonfarm payrolls increased 194k in September, materially short of the market’s forecast of 500k. The unemployment rate fell to 4.8%, partly reflecting a decline in the labor force participation rate.
A softening of the labor market complicates the potential decision by the Federal Reserve to begin tapering its bond purchases before year-end. Surging energy prices and robust wage gains, however, have many investors doubting that inflation will prove to be short-term in nature. Additionally, the Fed’s primary gauge of inflation rose in August by the most in three decades on an annual basis. The Fed may ultimately decide to press forward with tapering in November, providing the cover to raise rates next year if needed.
Treasury Yields
| Maturity | 10/8/21 | 9/10/21 | Change |
| 3-Month | 0.060% | 0.038% | 0.022% |
| 6-Month | 0.056% | 0.046% | 0.010% |
| 1-Year | 0.089% | 0.066% | 0.023% |
| 2-Year | 0.318% | 0.213% | 0.105% |
| 3-Year | 0.580% | 0.443% | 0.137% |
| 5-Year | 1.060% | 0.816% | 0.244% |
| 10-Year | 1.612% | 1.341% | 0.271% |
| 30-Year | 2.164% | 1.934% | 0.230% |
Agency Yields
| Maturity | 10/8/21 | 9/10/21 | Change |
| 3-Month | 0.044% | 0.050% | -0.006% |
| 6-Month | 0.055% | 0.058% | -0.003% |
| 1-Year | 0.088% | 0.084% | 0.004% |
| 2-Year | 0.316% | 0.220% | 0.096% |
| 3-Year | 0.601% | 0.443% | 0.158% |
| 5-Year | 1.061% | 0.825% | 0.236% |
Commercial Paper Yields (A-1/P-1)
| Maturity | 10/8/21 | 9/10/21 | Change |
| 1-Month | 0.080% | 0.080% | 0.000% |
| 3-Month | 0.100% | 0.090% | 0.010% |
| 6-Month | 0.140% | 0.130% | 0.010% |
| 9-Month | 0.160% | 0.150% | 0.010% |
Current Economic Releases
| Data | Period | Value | |
| GDP QoQ | Q2 ’21 | 6.70% | |
| U.S. Unemployment | Sept ’21 | 4.80% | |
| ISM Manufacturing | Sept ’21 | 61.10 | |
| PPI YoY | Aug ’21 | 10.50% | |
| CPI YoY | Aug ’21 | 5.30% | |
| Fed Funds Target | October 12, 2021 | 0.00% – 0.25% |