The two most impactful market events this week were the mid-term elections and the Federal Reserve meeting, both of which yielded predictable outcomes. The market seemed to like the House election results, given the massive equity rally Wednesday. Thursday, the Fed kept rates flat and offered an upbeat assessment of the economy. All signs point to another rate hike in December, unless something fundamentally changes from now, which is unlikely.
In other news, the 10-year Treasury yield hit a 7-year high of 3.232% before settling back down. This is relevant since the 10-year Treasury is the benchmark for both consumers and companies who borrow money. There is ample support that higher rates are here to stay. Factors behind this include a strong U.S. economy, high consumer sentiment, rising inflation readings, and large-scale public government debt auctions in public markets.
Lenders remain aggressive with price in a bid to win over well-qualified borrowers. This has helped offset higher yields, but only for the most qualified borrowers. While we believe interest rates will rise over time, our sense is that longer-dated interest rates will be range-bound and we are slightly biased towards floating rates.