Bond Market Commentary

Over in bond land, Treasury yields are 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 May. As of 6:46 AM ET, the yield on the 10-year note is rising three basis points (0.03%) to 4.27%, while the 30-year bond yield is increasing two basis points (0.02%) to 4.82%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is up three basis points (0.03%) to 3.75%.

Treasury yields were lower on Thursday as the third reading of first-quarter gross domestic product showed a larger-than-expected contraction, with the economy shrinking at an annualized pace of 0.5%, as consumer spending came in weaker than previously estimated. The advance goods trade deficit unexpectedly widened in May, while both pending home sales and the preliminary reading of durable goods orders for May increased more than projected. Initial jobless claims fell, though continuing claims increased. The yield on the 10-year note was down five basis points (0.05%) to 4.24%, while the 30-year bond yield fell three basis points (0.03%) to 4.80%. The yield on the two-year note decreased six basis points (0.06%) to 3.72%.

On the data front, personal income is expected to have increased 0.3% month-over-month (MOM) in May, less than the prior month’s 0.8%, while personal spending is expected to have increased 0.1% MOM in May compared to the prior month’s increase of 0.2%. The PCE deflator for May is expected to have risen 0.1% MOM, similar to the prior month’s change, and accelerated to 2.3% year-over-year (YOY) from the prior month’s 2.1%. Meanwhile, the core PCE deflator for May is expected to have increased 0.1% MOM, similar to the prior month’s change, and accelerated to 2.6% YOY from the prior month’s 2.5%. The finalized June reading of consumer sentiment from the University of Michigan is expected to come in at 60.5, similar to prior reading, while one-year and 5-10-year inflation expectations are projected to come in at 5.2% and 4.1%, compared to the prior readings of 5.1% and 4.1%, respectively. The Kansas City Fed will release their Services Survey for June.

In the central bank space, Fed Governor Lisa Cook, Cleveland Fed President Beth Hammack, and New York Fed President John Williams are scheduled to speak today.

Mortgage rates were lower in the latest week. For the week ending June 26, the average 30-year fixed mortgage rate was down four basis points (0.04%) to 6.77%, versus 6.86% a year ago. The 15-year fixed mortgage rate decreased seven basis points (0.07%) to 5.89%, versus 6.16% a year ago.

The Bloomberg 30-day visible supply fell $3.803 billion to $7.206 billion on Thursday, compared to the 12-month average of $13.740 billion.

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