Bond Market Commentary

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

May 25, 2017

Wednesday’s Action

Treasuries finished higher on Wednesday, paring early losses after the minutes of the May FOMC meeting left market-implied expectations for a June rate hike above 90%. Yields of U.S. government debt moved lower after the release showed Fed officials are planning to shrink the central bank’s massive $4.5 trillion balance sheet. In the system, the central bank will announce cap limits on how much it will allow to roll off each month without reinvesting. Any amount it receives in repayments that exceeds the cap limit will be reinvested. Benchmark 10-year notes were last up 8/32 to yield 2.25%. Shorter-dated two-year paper ticked up 2/32 to yield 1.29%. At the long end of the curve, the 30-year bond was 16/32 higher to yield 2.92%.

Treasury Auction

The U.S. Treasury continued this week's auctions with the sale of $34 billion of five-year notes. The offering came to market drawing a yield of 1.831%. The bid-to-cover ratio rose to 2.67 from 2.34 at the previous sale of the maturity, indicating stronger demand. The bid-to-cover ratio was the highest since 2.72 at the December 2016 auction.

Municipal Market Commentary

Wednesday, municipal market indices showed that muni bonds were unchanged to slightly firmer. As reported on May 17, U.S. municipal bond funds posted net inflows of $426.7 million compared with $605.7 million of net inflows the prior week, according to Lipper FMI. Tax-exempt new issue supply is expected to total approximately $6.8 billion this week, down from $8.5 billion the prior week but above the 2017 weekly average of $6.4 billion. The Bloomberg 30-day visible supply fell $191 million to $11.497 billion on Wednesday, below the 12-month average of $12.334 billion. The total is comprised of $2.440 billion of competitive bonds and $9.056 billion of negotiated bonds.

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

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

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