Bond Market Commentary

October 20, 2017

Thursday’s Action

Treasuries rallied on Thursday, as demand for perceived safe-haven assets pressed yields lower along the curve. Investors assumed a “risk-off” approach for most of the day as global tensions heightened between the Spanish government and the Catalan independence movement. The benchmark 10-year note yield finally settled at 2.32%, down two basis points from Wednesday’s close, though the yield dropped as low as 2.30% earlier this morning despite initial jobless claims falling to the lowest level since March 1973. The 30-year bond yield was off one basis point, ticking down to 2.84%, while the two-year note fell three basis points to finish at 1.54%.

Mortgage Rates

Mortgage rates declined modestly this week, ending a brief, two-week run of increases, according to Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending Oct. 19, 2017, the 30-year fixed mortgage dropped three basis points to 3.88%. This compares to 3.52% this time last year. The 15-year fixed rate mortgage averaged 3.19%, down two basis points from last week and compares to 2.79% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.17%, up one basis point from a week ago, which compares to 2.85% last year.

Municipal Market Commentary

Thursday, municipal market indices showed that muni bonds were unchanged to slightly firmer. As reported on October 11, U.S. municipal bond funds posted net inflows of $43.6 million compared with $140.3 million of net outflows the prior week, according to Lipper FMI. Tax-exempt new issue supply is expected to total $6.7 billion the week of October 16, up from $4.6 billion the prior week and above the 2017 weekly average of $6.5 billion. The Bloomberg 30-day visible supply fell $2.219 billion to $13.229 billion on Thursday, above the 12-month average of $11.259 billion. The total is comprised of $1.766 billion of competitive bonds and $11.463 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.