Fed Holds Steady, Markets React
Last week, the Federal Reserve opted to hold interest rates steady, keeping the benchmark rate at 4.33%. Fed Chair Powell’s comments reinforced a “wait-and-see” stance, redefining why rate cuts remain on the table but without committing to a specific timeline. The market responded with a slight dip in yields, with two-year swap rates down 8 basis points and 10-year swap rates down 9 basis points, though some of that was reversed by the start of this week.
Economic Data & Market Trends
- Retail Sales: The headline retail sales figure for February came in lower than expected at +0.2% (vs. +0.6% expected), largely due to weakness in auto sales.
- Consumer Confidence: A key report to watch this week, the Conference Board’s consumer confidence index, is expected to fall to 93.6—the lowest since early 2021.
- Inflation & GDP Outlook: The Fed revised its GDP projection slightly downward while increasing inflation expectations. Friday’s PCE inflation report is forecasted to remain steady at +0.3% MoM, with core PCE potentially ticking up to 2.7% YoY.
Fixed Income & Credit Markets
- Treasury auctions this week will bring $183 billion in supply, with key auctions in the 2-year, 5-year, and 7-year sectors.
- Junk bond spreads are widening, reflecting growing concerns over credit markets, though major distress remains under the surface.
CRE & Agency Debt Trends
- Loan extensions remain prevalent, driven by rate uncertainty and lenders requiring additional equity injections for refinancing.
- Tariffs could drive construction costs up 3–5% later this year, potentially slowing new development projects.
- On the hedging side, extension volume is outweighing brand new trades by a significant margin. Borrowers are using caps to buy down rates in the 1.50-2.00% range.
Looking Ahead
This week’s key events include consumer confidence data on Tuesday, durable goods orders on Wednesday, and the all-important PCE inflation print on Friday. Markets remain sensitive to Fed policy signals and broader economic trends, with liquidity concerns and credit market stability in focus.
