June 1, 2023
Direct Treasury: Interest rates are seeing a slight rise with Powell's speech and Cilic awaits

Direct Treasury: Interest rates are seeing a slight rise with Powell’s speech and Cilic awaits

On Super Wednesday, general bond prices rose slightly as investors looked for clues on the future of inflation in comments by Jerome Powell, Federal Reserve Chairman, and in the central bank’s stance regarding Selic.

According to Heitor Martins, a fixed income specialist at Nexgen Capital, the market is keen on the comments of Jerome Powell, Chairman of the Federal Reserve.

“What should affect the market the most is guidance (drop) from Federal Open Market Committee (FOMC) regarding upcoming interest rate hikes and US economic scenario reading,” Martins highlights.

Clearly, projection can weigh more than resolution, Martins assesses. The Federal Reserve (the US central bank) announced today Offer 0.5 pips on your prime rateto a new range between 0.75% and 1%, narrowing the pace of its monetary policy

In his speech, Jerome Powell said that a 75 basis point rate hike “has not been actively considered”. However, expectations about inflation in the short term are very high. “We hope to maintain a neutral level of rates, but if it is appropriate to go beyond that, we will not hesitate,” he said in a speech.

In Brazil, Christian Quartalori, Economist at Banco Ourinvest, highlighted that interest rates were running sideways during the day in anticipation of the central bank’s Copom (Monetary Policy Committee) decision on the new rate.

“More than the decision itself, the market is waiting for the post-meeting statement, even to understand the monetary authority’s next steps, and whether or not there are signs of further adjustments,” says the economist.

In addition to the position of central banks, Martins stresses that the Purchasing Managers’ Index (PMI) is on investors’ radar, which brings data from the service and retail sector in Europe and the United States and could lead the monetary authorities of these different regions in the upcoming meetings.

Within the immediate treasury, it was the short-term fixed price guarantee that generated the largest price increase.

The 2025 flat rate Treasury offered an annualized return of 12.31% higher than the 12.28% seen yesterday.

While the fixed-rate Treasury 2033, with semi-annual interest, provided an annualized return of 12.34%, up from the 12.32% recorded on Tuesday (3).

Fixed rate treasury bond prices for 2029 are running steadily.

In inflation-linked bonds, the highest increases were in Treasury IPCA + 2035 and Treasury IPCA + 2045 rates.

Both bonds provided a real return of 5.72% at 3:33 pm, up from 5.68% in the previous session.

Other rates remained stable or advanced by up to 3 basis points.

Check the quotes and prices of all public securities available for purchase from direct treasury shown on Wednesday afternoon (4):

American interest

As widely expected, the Federal Reserve announced on Wednesday (4) Offer 0.5 pips on your base price, to a new range between 0.75% and 1%, stressing the pace of its monetary policy, as announced after the Federal Open Market Committee (FOMC) meeting. This was the first increase of this size in 22 years. The decision was unanimous.

The move comes amid an attempt by the monetary authority to contain strong inflation, which reached its highest level in 40 years.

The statement stated that “the committee seeks to maximize employment and inflation at a rate of 2% in the long term,” stressing that with adequate strengthening of monetary policy, it expects inflation to return to its 2% target and the labor market remains strong.

Investors are also watching the pace of interest rate hikes by the Federal Reserve, as there are concerns that strong monetary tightening could lead to a sharp economic slowdown in the country.

According to the statement accompanying the decision, it is appropriate to raise interest rates. MPC members noted that “while overall economic activity slowed in the first quarter, household spending and business fixed investment remained robust.”

According to the decision makers, “Employment gains have been strong in recent months and the unemployment rate has fallen significantly.”

In addition, they claim inflation “remains elevated, reflecting pandemic-related supply and demand imbalances,” as higher energy prices are causing broader price pressures.

Federal balance sheet cut

“The Committee decided to begin reducing its holdings of Treasury and agency debt and agency mortgage-backed securities on June 1,” the Fed said in a statement.

In the same statement, he stressed that “the committee seeks to achieve maximum employment and inflation at 2% in the long term”, stressing the maximum of past meetings. “With the appropriate strengthening of monetary policy, the Committee expects inflation to return to its 2% target and the labor market to remain robust.”

“To support these objectives, the Committee has decided to increase the target range for the federal funds rate to 3/4 to 1% and expects that continued increases in the target range will be appropriate.”

For Treasuries, the limit will be initially set at $30 billion per month (between June and August), and as of September 2022, it will increase to $60 billion per month.

For mortgages, the cap will be initially set at $17.5 billion per month, starting in June through August, and starting in September 2022, it will increase to $35 billion per month.