Bond Market Commentary

March 8, 2021

In bond land, Treasuries are declining ahead of the opening bell on Monday, extending a selloff for a sixth week. Fiscal stimulus is in focus, with the House expected to approve the revised $1.9 trillion pandemic relief bill that was passed in the Senate over the weekend. Amid prospects for a sizable stimulus bill, the yield on the benchmark 10-year note is rising four basis point to 1.60%. The 30-year bond yield is adding two basis points to 2.30%, while the yield on the two-year note up one basis point to 0.15%. Economic data will be light today, with the lone release expected to show wholesale inventories climbed 1.3% In January after edging up 0.5% in the final month of 2020. Later this week, updates on inflation will likely be in focus on Wednesday, with consumer prices projected to have risen 0.4% in February, slightly above the previous month’s 0.3% uptick. Core CPI (excluding the more volatile food and energy components) is forecasted to have increased 1.3% year-over-year last month, slowing from January’s 1.4% clip. Updates on producer prices will hit the tape on Friday. Separately, the NFIB’s gauge of small business optimism is anticipated expected to have improved modestly in February, with the reading rising to 96.5 from the prior 95.0 figure. Rounding out the docket will be the Jobs Openings and Labor Turnover (JOLTS) survey, weekly unemployment claims, and a preliminary March reading on consumer sentiment from the University of Michigan.

Last week, Treasuries fluctuated on Friday following the Labor Department's monthly jobs report. The release showed the U.S. economy added 379,000 jobs in February, well above expectations of a 200,000 gain and January's upwardly revised 166,000 figure. Meanwhile, the unemployment rate unexpectedly fell to 6.2% from the prior 6.3% reading. The yield on the benchmark 10-year note surged above 1.60% before paring the spike to 1.56%, while the yield on the 30-year bond fell three basis points to 2.28%. Still, Treasuries declined for a fifth straight week, with the yield on the 10-year note seeing a 16 basis point surge last week.

Mortgage rates were mixed in the most recent week, according to the Freddie Mac Primary Market Mortgage Survey® (PMMS®). For the period ending March 4, 2021, the 30-year fixed rate was up five basis points to 3.02%, rising above the 3.00% level for the first time in seven months, and comparing to 3.29% at this time last year. The 15-year fixed mortgage rate held steady at 2.34%, versus 2.79% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.73%, lower by 26 basis points from the prior week and compares to 3.18% at this time last year. Since hitting a trough in January, mortgage rates have climbed by more than 30 basis points, with the effects noticeable in purchase demand. Buyer activity remains high, but has definitely eased during the past few weeks, hovering near the level seen a year ago (just before the pandemic hit). While rates are elevated at the highest levels in months, they remain near historic lows.

Tax-exempt new issue supply is expected to total $7.5 billion during the week of March 8th, compared to last week’s total of $6.4 billion and the 2020 weekly average of approximately $6.1 billion. The Bloomberg 30-day visible supply fell $2.144 billion to $10.142 billion on Friday, below the 12-month average of $13.233 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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