Bond Market Commentary

January 25, 2021

Treasuries are advancing ahead of the opening bell, as market participants weigh the likelihood of President Biden’s $1.9 trillion stimulus plan garnering Congressional support. The measure is facing increasing resistance, with a group of bipartisan lawmakers challenging the White House economic adviser on the size of the proposal during a call over the weekend. The yield on the benchmark 10-year note is down two basis points to 1.06%, and compares to 1.09% a week ago. The yield on the 30-year bond is falling three basis points to 1.82%, while the two-year note rate is holding steady at 0.12%. On the data front today, the Chicago Fed national activity index for December will hit the tape at 8:30 am ET. A reading of manufacturing activity in the Dallas Fed region will round out today’s docket at 10:30 am ET. The rest of the week’s busy data docket will include the first reading of fourth quarter U.S. GDP, core PCE deflator (the Fed’s preferred proxy of inflation), dual gauges on the U.S. consumer from the Conference Board and the University of Michigan and the weekly initial jobless claims data. The Federal Reserve will also hold its first Federal Open Market Committee (FOMC) meeting of 2021 this week. At the conclusion of the two-day summit, officials are widely expected to keep monetary policy status quo. Still, Fed Chair Jerome Powell’s post-meeting press conference on Wednesday will garner attention as market participants look for clues into when the Fed may start to taper its pandemic-induced bond buying program. On the auction front on Monday, the U.S. Treasury will sell $60 billion two-year notes along with $54 billion three-month and $51 billion six-month T-bills.

Mortgage rates moved slightly lower in the past week, and have hovered near historic lows for nearly a year amid the coronavirus pandemic. Rates have fluctuated recently, however, as political and economic factors drive Treasury yields higher, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending January 21, 2021, the 30-year fixed rate slipped two basis points to 2.77% and compares to 3.60% at this time last year. The 15-year fixed mortgage rate fell two basis points to 2.21%, versus 3.04% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.80%, 32 basis points lower from the prior week and compares to 3.28% at this time last year.

Tax-exempt new issue supply is expected to total $5.0 billion during the week of January 25th, compared to last week’s total of $4.8 billion and the 2020 weekly average of approximately $6.1 billion. The Bloomberg 30-day visible supply fell $2.164 million to $10.392 billion on Friday, below the 12-month average of $13.558 billion.

This information is obtained from sources and data considered to be reliable, but its accuracy and completeness is not guaranteed by Wells Fargo Advisors.

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