Bond Market Commentary

Over in bond land, Treasury yields are higher before the opening bell Wednesday ahead of today’s Federal Open Market Committee (FOMC) meeting, during which the Federal Reserve (Fed) is expected to keep its policy rate unchanged. Looking ahead, investors are also focused on tomorrow’s key economic releases, including June personal income, personal spending, and Personal Consumption Expenditures Deflator (the Fed’s preferred gauge of inflation) data, as well as the advance reading of second-quarter gross domestic product. As of 7:05 AM ET, the yield on the 10-year note is rising two basis points (0.02%) to 4.63%, while the 30-year bond yield is also increasing two basis points (0.02%) to 5.11%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is up three basis points (0.03%) to 4.32%.

Treasury yields were lower on Tuesday as July consumer confidence dropped unexpectedly compared to the prior month’s upwardly revised reading. Meanwhile, home prices rose more than forecasted in May. The advance goods trade deficit narrowed less than expected in June, while the preliminary reading of wholesale inventories for June showed smaller-than-forecasted increase of 0.3% month-over-month (MOM). The Richmond Fed’s latest manufacturing survey showed the composite index improving less than projected in July. The yield on the 10-year note was down four basis points (0.04%) to 4.61%, while the 30-year bond yield fell five basis points (0.05%) to 5.09%. The yield on the two-year note decreased three basis points (0.03%) to 4.29%.

On the data front, the Mortgage Banker Association’s gauge of mortgage applications decreased by 6.4% for the week ending July 24 versus the prior week’s increase of 1.9%. The Department of Energy’s measure of crude oil inventories is expected to have increased by 1.00 million barrels for the week ending July 24 versus the prior week’s increase of 2.01 million barrels.

In the auction space, the U.S. Treasury is set to issue $30 billion in two-year floating rate notes and $72 billion in 17-week bills.

The Bloomberg 30-day visible supply rose $1.286 billion to $19.397 billion on Tuesday, above the 12-month average of $14.017 billion.

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