As DB's Jim Reid writes in his Early Morning Reid, "this week marks the first anniversary of the initial big selloff in global markets due to the Covid-19 pandemic on Monday February 24th 2020" adding that even as the magnitude of the problem developed in front of our eyes, "there can’t have been many on the planet who would have thought that the majority of the Western World would still be in some kind of lockdown 12 months later let alone predicted where markets would have traded over the last year."
He continues: "Indeed the shadow of the pandemic will live on for many years in some form or another for life, economies and financial markets and last week was another where it’s impact and potential future aftermath was strongly felt." The highlight was a 20bps rise in 10yr US real yields and with that tomorrow and Wednesday’s semi-annual testimony from Powell before the Senate Banking and House Financial Services Committees. It would seem out of character for Powell to deliver a hawkish spin, especially given this back up in real yields and a repricing of the Fed (albeit small) in recent times.
So get ready for even more soothing words for markets for Powell... but even so the inflation fears are unlikely to go away whatever he says. That debate will continue to rumble on for months and possibly much longer. Case in point: we basically saw nearly one incremental 25bps hike priced into the Dec 24 contract over the last week and that fed (pardon the pun) into higher real yields but has taken the edge off the rise in breakevens for now. Overnight yields were on the move...