Bond Market Commentary

Over in bond land, Treasury yields are mostly higher before the opening bell Friday ahead of today’s personal income, personal spending, and Personal Consumption Expenditures (PCE) deflator (the Federal Reserve’s [Fed’s] preferred gauge of inflation) data for July. As of 6:46 AM ET, the yield on the 10-year note is rising two basis points (0.02%) to 4.22%, while the 30-year bond yield is also increasing two basis points (0.02%) to 4.90%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is unchanged at 3.63%.

Treasury yields were mixed on Thursday as the second reading of second-quarter gross domestic product growth was revised higher to a 3.3% annualized pace, while consumer spending came in stronger than previously estimated at a 1.6% annualized pace. Both initial and continuing jobless claims ticked down. Meanwhile, pending home sales for July fell more sharply than forecast on a monthly basis, while posting a stronger-than-expected annual gain. The yield on the 10-year note was down three basis points (0.03%) to 4.20%, while the 30-year bond yield fell four basis points (0.04%) to 4.88%. The yield on the two-year note increased two basis points (0.02%) to 3.63%.

On the data front, personal income is expected to have increased 0.4% month-over-month (MOM) in July, versus the prior month’s increase of 0.3%, while personal spending is expected to have increased 0.5% MOM in July compared to the prior month’s increase of 0.3%. The PCE deflator for July is expected to have risen 0.2% MOM, decelerating from the prior month’s 0.3%, but remained steady at 2.6% year-over-year (YOY). Meanwhile, the core PCE deflator for July is expected to have increased 0.3% MOM, similar to the prior month, and accelerated to 2.9% YOY from the prior month’s 2.8%. The advance goods trade balance for July is projected to show a deficit of $90.2 billion, more than the prior month’s revised deficit of $84.9 billion. The preliminary of July reading of wholesale inventories is expected to show an increase of 0.1% MOM, similar to the prior month’s increase, while retail inventories are forecasted to have increased by 0.2% MOM in July, versus the prior month’s increase of 0.3%. The Market News International Chicago purchasing managers’ index for August is expected to come in at 46.0, down from the prior month’s 47.1. The finalized August reading of consumer sentiment from the University of Michigan is expected to come in at 58.6, similar to the initial reading, while one-year and 5-10-year inflation expectations are projected to come in at 5.0% and 3.9%, compared to the initial readings of 4.9% and 3.9%, respectively. The Kansas City Fed will release their Services Survey for August.

Longer-term mortgage rates were lower in the latest week. For the week ending August 28, the average 30-year fixed mortgage rate was down two basis points (0.02%) to 6.56%, versus 6.35% a year ago. The 15-year fixed mortgage rate was unchanged at 5.69%, versus 5.51% a year ago.

The Bloomberg 30-day visible supply fell $825 million to $11.506 billion on Thursday, below the 12-month average of $13.996 billion.

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