Deposit Funding Compass Week of October 4, 2023

Private US companies added the fewest number of jobs since the start of 2021 in September and pay growth slowed, pointing to a weakening in labor demand in several industries. Private payrolls rose 89k last month after climbing 180k in August. The rout in bond prices took a pause this morning on the heels of that ADP report spurring bets that the US central bank can refrain from tightening policy. Ten-year Treasury yields slipped below 4.8%, after jumping 30 basis points this week as markets dialed back expectations for a rate hike this year. Traders are pricing a less than one-in-five chance of an increase in November, down from one-in-three previously. Yesterday amidst a slew of hawkish comments from Fed officials conviction grew that US interest rates could rise further from current 22-year highs, 30-year yields touched 5% for the first time since 2007.

CD issuance remains elevated and hasn’t seen the typical respite following a quarter end. Both the sharp increase in treasury yields and banks competing to attract depositors have pushed funding levels gradually higher this week. We don’t feel the same sense of urgency from issuers that accompanied the end of the quarter and expect liquidity to remain strong in the face of congestion.