Bond Market Commentary

September 22, 2017

Thursday’s Action

Treasuries were mixed on Thursday’s session. The yield curve of U.S. government debt flattened a day after hawkish commentary from the Fed. While the central bank concluded its policy meeting leaving rates unchanged, it suggested it could tighten one more time by year end. In addition, it announced it will start reducing the size of its $4.5 trillion balance sheet by $10 billion a month beginning in October. Benchmark 10-year notes were down 2/32 to yield 2.28%. Shorter-dated two-year paper was unchanged leaving its yield at 1.44%. The 30-year bond rose 8/32 sending its yield lower to 2.81%.

Mortgage Rates

Mortgage rates rose for the first time in seven weeks, according the Freddie Mac Primary Market Mortgage Survey® (PMMS®). The increase off the lowest levels of 2017 was attributed to the rise by the benchmark 10-year note yield. For the period ending September 21, 2017, the 30-year fixed mortgage was up five basis points to an average 3.83%. This compares to the 3.48% average rate a year ago. The 15-year fixed rate mortgage average rose to 3.13% from 3.08% last week and compared to 2.76% at this time last year. Five-year Treasury-indexed hybrid adjustable-rate mortgages gained four basis points to average 3.17% which is up from 2.80% for the same period in 2016.

Municipal Market Commentary

Thursday, municipal market indices showed that muni bonds were unchanged to slightly weaker. As reported on September 20, U.S. municipal bond funds posted net inflows of $574 million compared with $241.4 million of net inflows the prior week, according to Lipper FMI. Tax-exempt new issue supply is expected to total $4.5 billion the week of September 18, down from $6.6 billion the prior week and below the 2017 weekly average of $6.5 billion. The Bloomberg 30-day visible supply fell $752 million to $11.156 billion on Thursday, below the 12-month average of $11.550 billion. The total is comprised of $3.911 billion of competitive bonds and $7.244 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 Bank, N.A., a bank affiliate of Wells Fargo & Company.