The Eyes of the World
Prior Week Summary
The fixed markets sold-off last week in advance of a very active few days for news relating to international diplomacy, global central banking and another wave of Treasury supply. 10-year Treasury notes again flirted with the 3% level, before falling to end the week at 2.95%. On the economic data front, the week began with April Factory orders falling 0.8%, giving back some of the 1.7% gain in March, with an indication that the amount of unfilled orders continues to increase. Separately, the Commerce Department reported that our Trade gap has narrowed to a seven-month low as exports climb. The trade gap declined 2.1% to $46.2 billion in April from a positively revised $47.2 billion in March. Export activity rose by 0.3% to $211 billion in April led by gains in fuel, food and agricultural products.
The market is approaching this week’s FOMC meeting with a near certain expectation of a 25 basis point hike, as Fed Funds Futures indicate a 91% probability of a hike according to calculations from the CME’s Fedwatch tool.
The Look Forward
The market will compete for attention this week with any news to come out of the Trump-Kim summit in Singapore, updates from our G7 trading partners, as well as the beginning of the World Cup Tournament. During past World Cup tournaments, liquidity and market activity has tended to dry up as market participants become distracted by the games. In addition to the Fed meeting in the middle of this week, the market will need to absorb nearly $200mm in Treasury supply. Additionally, updated economic reports are expected for CPI, Industrial Production and Retail sales.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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