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Bond Market Commentary

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

July 1, 2022

Over in bond land, Treasuries are extending their recent rally ahead of the opening bell Friday. Key economic releases over the past couple weeks have supported the possibility of peak inflation, putting downward pressure on yields, though price pressure remains elevated by historical standards. Government securities have also caught a bid as perceived safe haven assets, with recessionary concerns having increased lately. The push and pull of these dynamics has spurred the most volatility in the Treasury market in over two years. This morning, the yield on the 10-year note is falling eight basis points (0.08%) to 2.94%, on track to decline 19 basis points (0.19%) since last Friday’s (June 24) close. The benchmark yield settled just 15 basis points (0.15%) higher last month after briefly hitting a peak of 3.50% in mid-June following the Federal Reserve’s (Fed) aggressive 0.75% rate hike. Meanwhile, the yield on the more Fed-sensitive two-year note is dropping 11 basis points (0.11%) to 2.85%, still having climbed 28 basis points (0.28%) since the end of May. The 30-year bond yield is down six basis points (0.06%) to 3.13%. On the data front, a survey from the Institute for Supply Management (ISM) is expected to reflect slowing growth in the U.S. manufacturing sector in June after several regional gauges deteriorated during the month. The purchasing managers’ index (PMI) is forecasted to fall to 54.5 from May’s 56.1 print. A comparable reading from S&P Global will also hit the tape. Rounding out the docket will be updates on construction spending and vehicle sales.

Yesterday, Treasuries strengthened, with the yield on the two-year note settling below 3.00% for the first time since early June. Additionally, the benchmark 10-year note yield slipped seven basis points (0.07%) to 3.02%. Disappointing economic updates were in focus, adding credence to the notion of peak Fed policy tightening and heightening worries about an economic pullback. Personal spending rose just 0.2% in May, while real personal spending (adjusted for inflation) declined 0.4%. Separately, the MNI Chicago PMI print dipped more than forecasted. Another release revealed weekly initial jobless claims came in at 231,000, near the highest level since January. Offering a bright spot, the core PCE Deflator (the Fed’s preferred proxy for inflation) climbed 4.7% year-over-year last month, the smallest gain since November.

Meanwhile, the recent surge in mortgage rates took a breather in the latest week, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the week ending June 30, 2022, the average 30-year fixed rate decreased 11 basis points (0.11%) to 5.70%, versus 2.98% a year ago and a record low of 2.65% in January 2021. The 15-year rate dropped nine basis points (0.09%) to 4.83% from the prior week. The reduction marks the first dip in weeks and compares to 2.26% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.50%, bucking the downtrend to rise nine basis points (0.09%) from last week and standing in contrast to 2.54% a year ago. With the Fed pursuing a soft landing for the economy, mortgage rates are expected to fluctuate as investors weigh the risk of ongoing inflation against the possibility of an imminent recession.

Municipal Market Commentary

The Bloomberg 30-day visible supply fell $2.626 billion to $10.607 billion on Thursday, below the 12-month average of $11.527 billion.

This information is obtained from sources and data considered to be reliable, but its accuracy and completeness is not guaranteed by Wells Fargo Advisors. Additional information available by request.

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