July 30, 2021
In bond land, Treasuries are advancing ahead of the opening bell on Friday, as investors await the latest economic indicators. On the data front today, the core PCE deflator, which is the Federal Reserve's preferred measure of inflation, likely climbed 0.6% in June, after ticking up 0.5% in the prior month. Year-over-year, the gauge is projected to rise 3.7%, picking up pace from the 3.4% annualized uptick in May, which had been the highest reading since April 1992, and holding above the Fed's 2% average inflation target for a third consecutive month. Other releases of note today include personal income and personal spending, along with the final reading of consumer sentiment from the University of Michigan, which likely held near the lowest level since February (80.8).
This morning, the yield on the 10-year note is down three basis points to 1.24%, and remains four basis points lower compared to where it settled last Friday (July 23). The benchmark rate is heading for a fifth consecutively weekly decline and on track to cap its fourth straight month in July (down 22 basis points this month), a run that has not occurred since the onset of the pandemic. On the longer-end of the curve, the yield on the 30-year bond is slipping three basis points to 1.89%, slightly lower for the week and heading for a 19 basis point monthly decline. On the short-end of the curve, the two-year note rate is off one basis point to 0.19% and compares to June's closing level of 0.25%.
On Thursday, yields moved modestly higher as investors weighed disappointing GDP and employment data. An influx of supply supported higher yields, as markets absorbed a $62 billion seven-year Treasury note auction and a surprise $6.5 billion corporate bond issuance from Apple. The Tech giant held a four-part investment grade bond sale, with the longest offering maturing in 40 years. This was the fourth time since May 2020 that Apple tapped into the investment grade market.
In the auction space, the U.S. Treasury sold $62 billion of seven-year notes at a high yield of 1.05% to tepid demand. The bid-to-cover ratio (an indicator for demand) came in at 2.23, well below the prior sale's 2.36 figure and the one-year average of 2.31. Still, markets absorbed the supply better than the lackluster auction for the maturity back in February, when the bid-to-cover ratio came in at a meager 2.04, reportedly the lowest on record.
On the data front Thursday, the first reading of second quarter GDP showed the U.S. economy expanded at a 6.5% annualized rate in the April thru June period, disappointing consensus estimates of 8.4% but expanding from first quarter's downwardly revised 6.3% annualized clip. Separately, weekly initial jobless claims came in at 400,000, above expectations of 385,000 but lower than the prior 424,000 figure. Rounding out the docket was a release showing pending home sales dipped 1.9% in June after jumping 8.3% jump in May.
Mortgage rates remained near historically low levels in the latest week, with the 30-year fixed mortgage rate staying below the 3% threshold for a fifth consecutive week, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending July 29, 2021, the 30-year fixed rate was up two basis points to 2.80%, rising slightly after hitting the lowest level since February 11 in the prior period and down from a near-term peak of 3.18% in April. This compares to 2.99% at this time last year and to its record low of 2.65% reached in early January. The 15-year fixed mortgage rate fell two basis points to 2.10%, versus 2.51% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.45%, down four basis points from the prior week and compares to 2.94% at this time last year. Mortgage rates moved modestly this week as economic activity continues to make progress towards pre-pandemic levels.
Municipal Market Commentary
The Bloomberg 30-day visible supply fell $1.552 billion to $9.464 billion on Thursday, below the 12-month average of $11.976 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.
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