Leader Week in Review - May 22nd, 2015
Economic Data Releases:
A light economic data week leading up to Memorial Day weekend saw the yield curve flatten as the front-end sold off, while the back-end declined. Both MBS and Investment Grade Credit spreads widened slightly while High Yield spreads tightened by 4 bps. Recently, inflation has continued to move towards the Fed’s 2% target with the most recent CPI reading of 1.8% YoY. Shorter time periods show even more strength, with a 3-month annualized rate of 2.6% (see chart 1).
While Wednesday’s release of FOMC Meeting Minutes didn’t bring any new information to light, it did highlight the Fed’s desire to begin interest rate normalization this year. The 10 year Treasury yield certainly agrees that the first rate hike will be this year having bottomed in February. Over the last three interest rate cycles, yields begin to price interest rate raises on average 5 months ahead of time (see chart 2).
Upcoming Economic Data Releases: