Bond Market Commentary

September 23, 2016

Thursday’s Action

Treasuries advanced Thursday. Yields of U.S. government debt rose as investors continued to digest the Fed’s decision on Wednesday to leave interest rates unchanged. Treasury yields also moved lower amid strong demand at the 10-year TIPS auction. The bid-to-cover ratio, a gauge of demand, rose 20 basis points to 2.59, the highest since May 2014. Benchmark 10-year notes were last up 13/32 to yield 1.62%. Shorter-dated two-year paper ticked up 1/32 to yield 0.77%. At the long end of the curve, the 30-year bond was 37/32 higher to yield 2.34%.

Treasury Action

The U.S. Treasury sold $11.7 billion in 10-year TIPS on Thursday. The offering came to market with a yield of 0.052%. The bid-to-cover ratio, a gauge of demand, rose 20 basis points to 2.59, the highest since May 2014.

Mortgage Rates

According to the most recent Freddie Mac Primary Mortgage Market Survey (PMMS), the 10-year Treasury yield declined after rising to its highest level since the Brexit referendum in the previous week. The 30-year fixed-rate mortgage followed Treasury yields lower as investors positioned ahead of the Federal Reserve’s September policy meeting. For the period ending September 22, the average 30-year fixed-rate mortgage fell two points to 3.48%, compared to 3.86% this time in 2015. The 15-year fixed-rate mortgage average was 2.76%, down from 2.77% last week and compared to 3.08% a year ago. Five-year hybrid adjustable-rate mortgages (ARM) declined to 2.80%, down from 2.82% in the previous period and compared to 2.91% at this time last year.

Municipal Market Commentary

Thursday, municipal market indices were slightly firmer. According to Lipper FMI, U.S. municipal bond funds posted the 51st consecutive week of inflows. As reported on September 21, net inflows were $69.7 million, compared with $485.5 million of net inflows the prior week. Tax-exempt new issue supply is expected to total approximately $8.4 billion this week, below last week’s $12.0 billion total but above the 2016 weekly average of $7.6 billion. The Bloomberg 30-day visible supply fell $709 million to $12.679 billion on Thursday, above the 12-month average of $11.846 billion. The total is comprised of $3.315 billion of competitive bonds and $9.363 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.

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