It has undeniably been a challenging week, despite the limited economic data releases. Since the start of the week, we have seen yields on the 10-year Treasury rise over 20 bps as of Thursday morning. This quick ascent has put increased pressure on mortgage rates that were still recovering from a substantial jump last week. The volatility in bond markets stems from a multitude of issues. Markets seem to be still digesting Fed Chairman Powell’s comments last week that were more hawkish than markets expected.

Additionally, the FOMC’s forecasting of fewer rate cuts in 2024, signaling rates will remain elevated, seems to have caught markets off guard. Investors are increasingly focusing on commodity markets, particularly the oil sector. Oil prices have been soaring, with many calling for over $100 per barrel in the very near future according to Goldman Sachs' outgoing commodities chief, Jeff Currie. This sharp increase in prices has raised fresh concerns about inflation, which, in turn, could force central banks to keep rates "higher for longer.” 

Lastly, unless an eleventh-hour agreement materializes, a federal government shutdown is slated to commence on October 1st. While this may not hold the same immediate consequences for bond markets as a government default, it does inject unnecessary uncertainty into the markets. One of the most pressing concerns during a shutdown is the unavailability of economic data. If the government shutdown impedes the release of economic data, it begs the question of how the Fed can effectively formulate policy, and how investors can assess economic health in the midst of the various headwinds mentioned earlier. With all these market worries, it is safe to assume that volatility will remain elevated.