August 2023 Market Review

The curve steepened, with long end yields climbing to levels not seen since the fourth quarter of 2022, as the market shifted focus onto supply/demand imbalances in the U.S. Treasury market. The Treasury released issuance forecasts which came in about $1bn per month greater than anticipated across maturity tenures. Coinciding with the Treasury funding announcement, Fitch downgraded the U.S. sovereign rating from AAA to AA+, citing expected fiscal deterioration and the challenges accompanying the growing debt burden.

Economic data continued to reflect a resilient economy with labor remaining stable and inflation metrics moderating, creating an ever-wider landing strip for a soft-landing by the FOMC. Meanwhile, at the Jackson Hole monetary policy conference, Chair Powell reemphasized the commitment to data dependency and the need to bring inflation back to its 2% target.

Overseas, China initiated stimulative measures to address signs of economic weakness, increasing concerns that overseas investors may add to the negative technicals facing Treasury markets.

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