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Bond Market Commentary

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

January 14, 2022

Over in bond land, Treasuries are weakening ahead of the opening bell Friday as market participants digest a plethora of hawkish comments from Federal Reserve (Fed) officials. Among the hawkish rhetoric, Fed Governor Waller stated that three rate increases this year was a “good baseline,” but that persistent inflation could cause four or even five rate hikes to be warranted. This morning, the yield on the benchmark 10-year note is adding four basis points (0.04%) to 1.74%, hovering near a two-year high. The yield on the 30-year bond is also up four basis points (0.04%) to 2.08%. Meanwhile, on the short end of the curve, the yield on the two-year note is rising three basis points (0.03%) to 0.92%, hitting levels last seen before the pandemic. On the data front today, U.S. retail sales will highlight the docket, with December’s figure anticipated to reflect a 0.1% decrease, easing from the previous 0.3% uptick. Separately, import prices likely rose 0.2% in December, decelerating from the prior 0.7% advance. The year-over-year figure is anticipated to come in at 10.8%, below the prior month’s 11.7% annual pace. Other data in focus is a preliminary January reading from the University of Michigan, which is expected to reveal that consumer sentiment fell to 70 from a previous 70.6 as concerns over elevated price pressures linger. Rounding out the docket will be updates on export prices, industrial production, capacity utilization, and business inventories for November. In central bank news, New York Fed President John Williams is slated to give remarks later today. No auctions are scheduled to be held today.

On Thursday, Treasuries continued to stabilize from last week’s rout. The yield on the 10-year note dipped three basis points (0.03%) to 1.70%. Meanwhile, the yield on the 30-year bond fell four basis points (0.04) to 2.04% after a generally solid auction of the maturity. On the data front yesterday, weekly initial jobless claims came in at 230,000, up from the previous 207,000 figure. Another report showed producer prices edged 0.2% higher in December, below forecasts of a 0.4% increase and slowing from the prior 1% advance. On an annual basis, the Producer Price Index (PPI) surged at a near record 9.7%. This follows Wednesday’s reading which revealed that the Consumer Price Index (CPI) jumped 7% year-over-year last month, in-line with estimates but still the fastest pace since June 1982. Meanwhile, Fed Governor Lael Brainard emphasized during her nomination hearing for Fed Vice Chair that lowering inflation back towards 2% while supporting the economic recovery will remain the central bank’s top priority. In the auction space, $22 billion of 30-year bonds were sold at a high yield of 2.075%. The bid-to-cover ratio (a gauge of demand) came in at a solid 2.350, above the prior sale’s 2.220 figure. Robust demand from investors left dealers with just 17.9% of the issue, while indirect bidders took down 65%, above the six-month average of 64.2%.

Mortgage rates climbed for a third consecutive week, jumping to their highest levels since May 2020, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending January 13, 2022, the 30-year fixed rate surged 23 basis points (0.23%) to 3.45%. This is notably above a year ago, when the rate was at its record low of 2.65%. The 15-year fixed mortgage rate increased 19 basis points (0.19%) to 2.62% in the latest week, versus 2.16% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.57%, up 16 basis points (0.16%) from the prior week and compares to 2.75% at this time last year. Mortgage rates experienced a significant weekly advance, tracking similar moves in U.S. Treasury yields in response to the prospect of faster monetary tightening from the Federal Reserve. The U.S. central bank has made it clear that they will use their tools to combat elevated inflation. While the increase in mortgage rates has not yet dampened buyer demand, this is likely to change in the near future as home price growth persists.

Municipal Market Commentary

The Bloomberg 30-day visible supply rose $1.450 billion to $12.826 billion on Thursday above the 12-month average of $11.373 billion.

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