Written by Peter Baden, CFA, Chief Investment Officer
Headlines of the Week
With COVID variants spreading, companies reporting and entertainment events happening, the markets ranged from concerns of a slow down, to the reopening is happening on schedule. The US Treasury yield curve continued to flatten, but only because intermediate rates increased more than long rates. The give back in yields was focused on the “Belly” of the curve with the 3, 5 and 7 year US Treasury giving up around 8 basis points, compared to 7 basis points for the 10 year, and 5 basis points for the 30 year. Traders reacted to improving vaccination rates, good corporate reports and few signs the economy will close to battle COVID.
Headlining the weeks economic news was the jobs report. The Change in Nonfarm Payrolls was 943k, ahead of consensus forecasts of 870k. Last month number was revised up to 938k versus 850k. The Unemployment Rate declined to 5.4% below the 5.7% consensus estimate and an improvement on last month’s 5.9%. While both numbers are promising for economic growth, the Average Hourly Earnings rose 4%, potentially concerning for future inflation.
This week the US Treasury announced their August refunding schedule. Importantly, the Treasury highlighted their “expectation of announcing an initial set of auction size reductions as soon as the November refunding announcement.” This is quite a forceful statement from Treasury, which usually avoids pre-committing. This announcement, potentially around the same time as tapering the Fed’s Bond Buying Program is considered, might make a repeat of the Taper Tantrum less likely.
Next week we get the readings on CPI and PPI. With recent prints exceeding expectations, markets will be looking for transitory, sticky or worse spreading indications in the numbers.
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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