Weekly Report – January 31th, 2024

Graph 2024.01.31

Highlight of the Week

Interest Rates Remain Unchanged at January Policy Meeting 

  • As expected, policymakers voted to hold the Federal Funds Rate steady in a range between 5.25% and 5.50% at Wednesday’s meeting. This decision marks the fourth FOMC meeting in a row where rates remain unchanged as policymakers continue to work to bring inflation to the 2% target level.
  • Although the Federal Reserve had previously signaled three rate cuts throughout 2024, officials have also stressed that the central bank’s plan may change depending on economic data.  In Wednesday’s statement, Jerome Powell expressed that “the committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%”.  Following the Fed’s announcement, traders in the futures market scaled back the chances of a cut in March to 48%, compared to 60% earlier in the day.
  • This decision comes amid indicators that the debt market is warming back up after interest rates skyrocketed in 2022. Signs of credit expansion and an increasing willingness to borrow can be seen from consumer confidence levels, investment-grade bond spreads, and speculative-grade loan issuances.
    • As consumer confidence jumped in January to a two-year high of 114.9, consumer borrowing also increased.  Mortgage rates have fallen steadily since the 8% peak in October, spurring a jump in applications for mortgages to buy homes.  Overall home sales activity is expected to pick up throughout 2024.
    • In the corporate bond market, investors are demanding a lower premium for holding corporate bonds instead of Treasuries, bringing down borrowing costs for companies.  As a result, investment-grade corporate bond issuance in January was at a near-record pace.
    • Speculative-grade loan issuances (including refinancing and extensions) have also shot up in January.  A healthy number of these issuances have been loans to raise new money, including loans used to pay dividends to shareholders.

Rate Curves

Graph 2024.01.31
  • Treasury yields fell after Wednesday’s meeting.
  • 10-year yields slipped below 4% on Wednesday due to increased investor demand following recent economic data, regional bank earnings, and news from the Treasury Department. Often used as a benchmark for the cost of debt, the decline in 10-year treasury yields should further spur the willingness to borrow.
Category: Market Updates
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