Written by Sarah Conwell, Portfolio Manager
Headlines of the Week
- ECB Signals Readiness to Curb Bank Dividends When Cap Lifts
- Dow jumps 200 points, S&P 500 rises to record as stocks head for winning week
The US Treasury yield curve was again little changed in the week, with yields in the belly of the curve (3s, 5s, and 7s) declining anywhere from 3 to 6 basis points and no material increase or decreases elsewhere. It appears investors and traders took a slight pause from participating in market movements in the quiet economic week.
Housing Starts, a relatively volatile figure, grew 6.3% in June to an annualized 1.6 million figure, the largest increase in 3 months. On the contrary, Building Permits fell 5.1% in June, the third month in a row a negative reading hit the tape. Building Permits is also a volatile figure, but unlike Housing Starts it acts as a leading indicator. Persistent negative trends in permits is likely to result in a decline in overall sentiment for the housing market.1 To wrap up the housing data, Existing Home Sales increased 1.4% last month, slightly short of the 1.7% expectations. The prior month’s reading, May, for all three, Housing Starts, Building Permits, and Existing Home Sales, were revised lower, another indication that the extreme increases in home prices we have witnessed over the past year could be taking a toll on overall demand in the sector. As you can see in this week’s Chart of the Week, Housing Starts maintain their upward trajectory, but it appears to be slowing to an extent (see annotation).
Next week brings a full slate of activity: New Home Sales will be released on Monday, Durable Goods on Tuesday, the FOMC meeting and subsequent rate decision on Wednesday, GDP on Thursday, and Personal Income and Spending on Friday.
1We haven’t seen quite the persistence needed to see this reaction, this is just something to keep in mind if these negative readings continue into the fall and winter months.
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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