Bond Market Commentary

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

February 24, 2017

Thursday’s Action

Treasuries advanced on Thursday. Yields of U.S. government debt moved lower after Treasury Secretary Steve Mnuchin mentioned the idea of issuing ultra-long bonds. On Thursday, Mnuchin said issuing ultra-long Treasury bonds is something “we should seriously look at” with interest rates likely to stay low for a period of time. While Mnuchin stated he’s researching the option, he wasn’t ready to announce anything tangible about the structure. Benchmark 10-year notes were last up 12/32 to yield 2.37%. Shorter-dated two-year paper ticked up 2/32 to yield 1.18%. At the long end of the curve, the 30-year bond was 13/32 higher to yield 3.01%.

Treasury Auction

The U.S. Treasury concluded this week's auctions with the sale of $28 billion of seven-year notes. The offering came to market drawing a yield of 2.197%. The bid-to-cover ratio increased to 2.49 from 2.45 at the previous sale of the maturity, indicating stronger demand. The bid-to-cover ratio was the highest since 2.54 at the December auction.

Mortgage Rates

According to the most recent Freddie Mac Primary Mortgage Market Survey (PMMS), this week’s report once again displays the disconnect between mortgage rates and Treasury yields. In a short week following Presidents Day, the 10-year Treasury yield fell roughly eight basis points. However, the 30-year mortgage rate rose one basis point to 4.16%, a result of continued uncertainty. For the period ending February 23, the average 30-year fixed-rate mortgage rose one point to 4.16%, compared to 3.62% this time in 2016. The 15-year fixed-rate mortgage average was 3.37%, up from 3.35% last week and compared to 2.93% a year ago. Five-year hybrid adjustable-rate mortgages (ARM) declined to 3.16%, down from 3.18% in the previous period and compared to 2.79% at this time last year.

Municipal Market Commentary

Thursday, municipal market indices were slightly firmer. As reported on February 15, U.S. municipal bond funds posted net inflows of $480.1 million compared with $304.2 million of net inflows the prior week, according to Lipper FMI. Tax-exempt new issue supply is expected to total approximately $6.0 billion this week, below the 2016 weekly average of $8 billion. The Bloomberg 30-day visible supply fell $483 million to $7.359 billion on Thursday, below the 12-month average of $12.456 billion. The total is comprised of $1.949 billion of competitive bonds and $5.410 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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