Bond Market Commentary

Over in bond land, Treasury yields are mostly unchanged before the opening bell Friday after U.S President Donald Trump unveiled new tariffs, including a 100% duty on pharmaceuticals and levies on heavy trucks and furniture. Investors are looking forward to today’s August personal spending, personal income, and Personal Consumption Expenditures (PCE) deflator data. As of 6:47 AM ET, the yield on the 10-year note is rising one basis point (0.01%) to 4.18%, while the 30-year bond yield is unchanged at 4.75%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is unchanged at 3.66%.

Treasury yields were mostly higher on Thursday as markets contended with a barrage of economic data and Federal Reserve (Fed) commentary. The third reading of second-quarter gross domestic product was unexpectedly revised higher to an annualized 3.8% quarter-over-quarter, while August’s preliminary durable goods orders rose unexpectedly. Existing home sales came in higher than expected, while both initial and continuing jobless claims fell. The yield on the 10-year note was up two basis points (0.02%) to 4.17%, while the 30-year bond yield was unchanged at 4.75%. The yield on the two-year note increased six basis points (0.06%) to 3.66%. As of end of day Thursday (September 25), futures markets are pricing in 22 basis points (0.22%) worth of rate cuts at the Fed's upcoming October meeting, with a cumulative 39 basis points (0.39%) worth of rate cuts by year-end 2025 and a cumulative 99 basis points (0.99%) worth of rate cuts by year-end 2026.

On the data front, personal income is expected to have increased 0.3% month-over-month (MOM) in August, slower than the prior month’s 0.4%, while personal spending is expected to have increased 0.5% MOM, similar to the prior month’s increase. The PCE deflator for August is expected to have risen 0.3% MOM and 2.7% year-over-year (YOY), versus the prior month’s 0.2% and 2.6%, respectively. Meanwhile, the core PCE deflator for August is expected to have increased 0.2% MOM, from the prior month’s 0.3%, and 2.9% YOY, similar to the prior month’s reading. The finalized September reading of consumer sentiment from the University of Michigan is expected to come in at 55.4, while one-year and 5-10-year inflation expectations are projected to come in at 4.8% and 3.9%, all unchanged from the initial readings.

Mortgage rates were higher in the latest week. For the week ending September 25, the average 30-year fixed mortgage rate was up four basis points (0.04%) to 6.30%, versus 6.08% a year ago. The 15-year fixed mortgage rate increased eight basis points (0.08%) to 5.49%, versus 5.16% a year ago.

In the central bank space, Fed Vice Chair for Supervision Michelle Bowman and Richmond Fed President Tom Barkin are scheduled to speak today.

The Bloomberg 30-day visible supply fell $997 million to $16.369 billion on Thursday, above the 12-month average of $13.836 billion.

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