Written by Sarah Conwell, Portfolio Manager
Headlines of the Week
- Fed Chair Powell grilled by grouchy senators over inflation and climate change, even as economy rebounds
- U.S. Senate Democrats agree to $3.5 trln for budget reconciliation bill
The US Treasury yield curve was little changed week-over-week, with the largest movement coming in the 3-year yield, an increase of about 6 basis points (bps). The rest of the curve moved less than 3 bps in either direction (increase/decrease).
On Tuesday, the Consumer Price Index (CPI) was released and was almost double expectations on a month-over-month (MoM) basis. Prices increased 0.9% in June on both a headline and core basis, higher than expectations of a 0.5% and 0.4% increase, respectively. The year-over-year figure now stands at 5.4% and 4.5% on a headline and core basis. The data for June showed that most of the monthly increase could be attributed used cars and trucks, new vehicles, air fares, and apparel. All of which were affected by the closing of the economy in 2020 and are now facing increasing prices as higher demand and supply constraints work their way through the economy. Due to these two factors, economists (and more importantly, the Fed) are not expecting prices to remain elevated in the long-term.
Today, Retail Sales were released and exceeded expectations by a considerable margin. Sales rose 0.6% in June, compared to expectations of a 0.3% decline, however, May was revised down by 0.4 percentage points to -1.7%. 9 of the 13 categories increase in June, including electronics and appliances, clothing, and restaurants. Sales of vehicles and vehicle parts declined in the month, likely a result of supply chain disruptions and price increases, as noted above (see: semiconductor shortage). As you can see in this week’s Chart of the Week, total retail sales has made quite an impressive comeback over the past year even when factoring in the slight pullback from last month, more evidence that the consumer will remain the workhorse of the US economy.
Next week, Building Permits and Housing Starts will be released on Tuesday, the Leading Index on Thursday, and Markit PMIs on Friday.
Chart of the Week
Indexes used for AAA Municipal Yields
2 Year: BVAL Municipal AAA Yield Curve (Callable) 2 Year (Symbol: CAAA02YR BVLI)
5 Year: BVAL Municipal AAA Yield Curve (Callable) 5 Year (Symbol: CAAA04YR BVLI)
10 Year: BVAL Municipal AAA Yield Curve (Callable) 10 Year (Symbol: CAAA10YR BVLI)
30 Year: BVAL Municipal AAA Yield Curve (Callable) 30 Year (Symbol: CAAA30YR BVLI)
Indexes used for US Treasury Yields
2 Year: US Generic Govt 2 Year Yield (Symbol: USGG2YR)
5 Year: US Generic Govt 5 Year Yield (Symbol: USGG5YR)
10 Year: US Generic Govt 10 Year Yield (Symbol: USGG10YR)
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