November 2021 Market Review

November had its share of rates volatility. The benchmark 10-year Treasury note began the month at a 1.55% yield, dipped down over 10 basis points (bps), then rose to 1.67% before rallying back to 1.40% at month end. Yields inside of 3-years behaved differently, closing out the period at slightly higher levels. The 5-30-year slope of the curve flattened by 14 bps. 

The increase in rates mid-month reflected positive economic growth news and intensifying concern over the inflation outlook. Jobs numbers, personal income, spending, and retail sales all looked good. Year over year CPI at 6.2% looked scary. Although hotly debated, the market increasingly questioned Fed Chair Powerll’s characterization of inflation as “transitory,” and priced in quicker Fed Funds rate moves. By month end, the Chairman himself decided to ditch the terminology and noted the Fed would have to consider stepping up its taper program. The new Omicron variant set off a significant but short-lived flight to quality. 

The volatility of the 30-year Treasury bond is notable, as is its significant rally late in the month. At this point in the cycle, long nominal yields would likely be at risk. Technical factors were no doubt in play, but an aggressive Fed is certainly being factored into market psychology.