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Bond Market Commentary

Updates on bond market data, news, and activity each day.

August 8, 2022

Over in bond land, Treasuries are strengthening ahead of the opening bell Monday, pushing yields modestly lower and paring some of the recent jump in rates. The yield on the benchmark 10-year note is down four basis points (0.04%) to 2.79%, while the yield on the 30-year bond is off by the same amount to 3.03%. The yield on the two-year note is dipping two basis points (0.02%) to 3.22%. Last Friday (August 5), shorter-dated Treasuries especially tumbled following the latest jobs report. The Labor Department showed the U.S. economy added 528,000 non-farm payrolls in July, the most since February, and more than double estimates of a 250,000 increase. The unemployment rate ticked down to 3.5%, while average hourly earnings climbed 5.2% year-over-year, matching the prior month’s upwardly revised gain. The update dampened previous optimism over a potential central bank policy pivot. Instead, the report bolstered expectations for another ultra-aggressive rate increase in September as it provided evidence of economic resiliency following hawkish Fedspeak earlier in the week. The more Federal Reserve (Fed)-sensitive two-year note yield closed the week 36 basis points (0.36%) higher at 3.24% as investors ramped up expectations for another 75-basis point (0.75%) rate hike next month. Fed-fund futures data recently indicated a probability of nearly 70% for this sizeable move, up from just a 40% chance prior to the jobs data.

There are no economic releases of note today, though the latest update on inflation will take center stage on Wednesday, as it will likely determine the future course of Fed rate increases. The closely watched Consumer Price Index (CPI) is forecasted to have climbed 8.7% year-over-year in July, easing slightly from the prior month’s 9.1% annual increase that had marked a fresh four-decade high. Still, core CPI (excluding the more volatile food and energy components) likely jumped 6.1% on an annual basis, accelerating from the previous 5.9% year-over-year advance. Other readings on inflation this week include import prices and the Producer Price Index (PPI). Also in focus, a preliminary August update from the University of Michigan, is expected to show U.S. consumer sentiment improving to 52.5 from July’s 51.5 print. Rounding out the docket will be updates on small business optimism, first-time unemployment claims, and mortgage applications. In the auction space, the U.S. Treasury Department is slated to sell 10-year notes and 30-year bonds later this week. In central bank news, a few regional Fed presidents have public appearances scheduled. Fed Governor Michelle Bowman suggested that 0.75% rate hikes should continue to be considered by policymakers until inflation meaningfully declines. San Francisco Fed President Mary Daly once again reiterated that price pressures remain too elevated and that the central bank must prioritize reining it in.

Mortgage rates continue to experience outsized volatility as the path of inflation remains uncertain and economic growth slows. For the week ending August 4, the average 30-year fixed rate decreased by 31 basis points (0.31%) to 4.99%, the lowest level since April and the sharpest one-week slide since early July. This stands in contrast to 2.77% a year ago and a record low of 2.65% set in January 2021. The 15-year rate dropped 32 basis points (0.32%) to 4.26%, versus 2.10% this time last year. Five-year Treasury indexed hybrid adjustable-rate mortgages averaged 4.25%, down four basis points (0.04%) from the prior week and compares to 2.40% a year ago.

Municipal Market Commentary

The Bloomberg 30-day visible supply fell $483 million to $6.565 billion on Friday, below the 12-month average of $11.496 billion.

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