Powell works the bond market

Sends 5-year yields down and long-term yields up

Chart of the Day

Jerome Powell appeared to do exactly what the Fed wanted yesterday, by persuading markets that even though more FOMC officials now expect rate hikes earlier, in 2023, the Fed is still likely to take a very long time to raise rates. That caused the 5-year yield to drop back, while the longer-term yields increased as perceptions of looser monetary policy now raised perceptions for interest rates/inflation further down the line.

Macro

US housing starts fell sharply to 1,421,000 annualized in February, and building permits decreased to 1,682,000. Permits still suggest starts will rise, though.

In Canada, inflation rose to 1.1% in February, and core inflation decreased to 1.2%.

Brazil's central bank raised its policy rate by 0.75% to 2.75% at its meeting yesterday. Many expect more hikes to come, despite the country’s weak economic situation, as the central bank grows concerned about higher inflation and the potential for capital outflows that could cause the real to weaken further.

Markets

Those yield moves above caused the 30y-10y yield to reach its steepest in many years.

The MOVE index of implied bond market volatility fell to 66.8, from 70.8, in another sign that markets are convinced there will be no sudden shift in Fed policy.

Lower real rates at the short end help explain why the Dollar Index fell by 0.5% yesterday. The DXY has depreciated by 0.4% over the past week

US oil refinery utilization rose sharply last week, but remains low after the outages caused by bad weather in the south.

The low level of refinery utilization has caused gasoline prices to outpace oil prices recently, though that pattern reversed yesterday as the report also showed After a weak day yesterday.

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