Morning Notes — Levels

The main driver of the sell-off has been sharply higher bond yields at the start of the year.  The yield backup has been driven by expectations for a more aggressive tightening cycle based on Fed rhetoric.  The Fed has been in its pre-meeting quiet period for the past week, giving the media editorial license to explore extreme scenarios that include a 50bp hike and balance sheet runoff beginning as early as March.  The current Fed narrative sets the stage for a more dovish than feared FOMC outcome Wednesday and relief rally in equities. The Omicron-induced slowdown from mid-December is a secondary driver of the sell-off that we expect to fade in coming weeks.  Various European countries announced plans overnight to ease restrictions and US Covid metrics continue to improve with signs of increased activity this week in US card spending data.