July 26, 2021
Treasuries are advancing before the opening bell on Monday, as investors await a week full of economic data releases and central bank updates. Geopolitical tensions between the U.S. and China are also inspiring a perceived “risk-off” mood this morning. The yield on the 10-year note is down five basis points to 1.23%, while the 30-year bond is falling by the same amount to 1.87%. On the short-end of the curve, the yield on the two-year note is off one basis point to 0.19%.
On the data front today, new home sales are expected to have rebounded 3.7% last month after falling 5.9% in May. A separate release is expected to show manufacturing activity in the Dallas Fed region improving in July.
Later this week, the first reading of second-quarter U.S. GDP (Thursday) is projected to show the economy grew at an 8.5% annualized pace during the April-June period, gathering momentum from a 6.4% annualized clip during the first quarter. Also in focus will be the Fed’s preferred proxy for inflation, the core PCE deflator, on Friday. Other releases of note include personal income and personal spending, along with the Conference Board’s measure of consumer confidence.
In central bank updates this week, all eyes will be on the Federal Reserve on Wednesday for their policy decision and post-Federal Open Market Committee (FOMC) meeting press conference with Fed Chair Jerome Powell.
In the auction space today, the U.S. Treasury Department will sell $60 billion of two-year notes, $54 billion of 13-week T-bills, and $51 billion of 26-week T-bills.
Last week, Treasuries were little changed after a volatile week. The yield on the 10-year note fell to a low of 1.17% during intraday trading Monday, a trough not touched since February 12, and well below a 14-month high of 1.77% reached in March.
The benchmark yield recovered to end the week one basis point lower at 1.28%, but still capped its fourth consecutive weekly decline. The 10-year bond rate finished the week down 18 basis points since the end of June, on track to fall for fourth straight month in July, a run that has not occurred since the onset of the pandemic. Meanwhile, data updates on Friday painted a mixed economic picture. A preliminary July reading on U.S. manufacturing activity from research firm IHS Markit improved to a new record, while the comparable measure of services sector activity slipped to a five-month low, albeit still in firmly expansionary territory.
Mortgage rates have continued to track U.S. Treasury yields lower, with the 30-year fixed mortgage rate down for a fourth straight week, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending July 22, 2021, the 30-year fixed rate slid 10 basis points to 2.78%, the lowest level since February 11 and down notably from a near-term peak of 3.18% in April. This compares to 3.01% at this time last year and to its record low of 2.65% reached in early January. The 15-year fixed mortgage rate fell 10 basis points to 2.12%, versus 2.54% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.49%, bucking the downward trend to add two basis points from the prior week and compares to 3.09% at this time last year. The recent decline in mortgage rates is providing borrowers more purchasing power, as homebuyers face higher prices and tight inventory.
Municipal Market Commentary
The Bloomberg 30-day visible supply fell $2.382 billion to $7.154 billion on Friday, below the 12-month average of $11.991 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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