Bond Market Commentary

Over in bond land, Treasury yields are mostly unchanged before the opening bell Friday ahead of today’s economic releases, including a first look at fourth-quarter gross domestic product (GDP), December’s Personal Consumption Expenditures (PCE) deflator, and preliminary February purchasing managers’ index (PMI) data from S&P Global. As of 6:55 AM ET, the yield on the 10-year note is unchanged at 4.07%, while the 30-year bond yield is also unchanged at 4.70%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is up one basis point (0.01%) to 3.47%.

Treasury yields were mostly lower on Thursday as initial jobless claims decreased while continuing claims for the week prior increased. The U.S. trade deficit for December unexpectedly widened, coming in at $70.3 billion. Meanwhile, pending home sales unexpectedly declined in January. The yield on the 10-year note was down one basis point (0.01%) to 4.07%, while the 30-year bond yield also fell one basis point (0.01%) to 4.70%. The yield on the two-year note was unchanged at 3.46%. As of end of day Thursday (February 19), futures markets are pricing in two basis points (0.02%) worth of rate cuts at the Federal Reserve's upcoming March meeting, with a cumulative 58 basis points (0.58%) worth of rate cuts by year-end 2026 and a cumulative 70 basis points (0.70%) worth of rate cuts by year-end 2027.

On the data front, personal income is expected to have increased 0.3% month-over-month (MOM) in December, similar to the prior month’s change, while personal spending is expected to have increased 0.3% MOM in December compared to the prior month’s increase of 0.5%. The PCE deflator for December is expected to have risen 0.3% MOM and 2.8% year-over-year (YOY), versus the prior month’s 0.2% and 2.8%, respectively, while the core PCE deflator is projected to have increased 0.3% MOM and 2.9% YOY, up from the prior month's 0.2% and 2.8%, respectively. The advance readings of fourth-quarter GDP, GDP Price Index, core PCE deflator, and personal consumption are expected to come in at annualized growth rates of 2.8%, 2.8%, 2.6% and 2.4%, respectively, down from the prior quarter’s 4.4%, 3.8%, 2.9%, and 3.5%, respectively. Meanwhile, the preliminary reading of S&P Global’s composite PMI for February is expected to come in at 53.1, slightly higher from the prior month’s 53.0, with the manufacturing and services PMIs forecasted at 52.4 and 53.0, respectively, compared to the prior month’s 52.4 and 52.7, respectively. New home sales are projected to have been at an annualized 730,000 pace in December, with the delayed November data also set for release. The finalized February’s reading of consumer sentiment from the University of Michigan is expected to come in at 57.3, while one-year and 5-10-year inflation expectations are projected to come in at 3.5% and 3.4%, all unchanged from the prior readings. 

In the central bank space, Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic, Dallas Fed President Lorie Logan, and St. Louis Fed President Alberto Musalem are scheduled to speak today.

Mortgage rates were lower in the latest week.
For the week ending February 19, the average 30-year fixed mortgage rate was down eight basis points (0.08%) to 6.01%, versus 6.85% a year ago. The 15-year fixed mortgage rate decreased 9 basis points (0.09%) to 5.35%, versus 6.04% a year ago.

The Bloomberg 30-day visible supply fell $1.167 billion to $10.738 billion on Thursday, below the 12-month average of $13.884 billion.

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