Yield Curve Flattest in 11 Years
Prior Week Summary
It was a relatively lackluster week for the limited amount of data that was released. Most of the housing data came in below market forecasts. Industrial Production had an upward revision to the April release from 0.7% to 0.9%, but May came in at -0.1% despite the market forecasting a 0.2% increase.
Along with other weaker economic data, the trade war between the US and other foreign countries continued to escalate. The threat of escalating tariffs has evolved to include not only China, but European goods as well. The deadlines on tariffs are approaching in the next few weeks, with the parties involved unwilling to yield at this point. The Treasury Department has also decided to increase their scrutiny of Chinese investments in certain US industries. There are some concerns of a potential recession within the global market if trade discussions continue to deteriorate.
In other news, expect a price decrease at the pump in the very near future. OPEC met over the weekend and while there was confusion on how to interpret it, there is a consensus that supply is expected to increase.
The spread between the 2-year and 10-year Treasury notes fell once again this week, continuing the flattening trend. There was a 2 bps decrease to a spread of 35 bps. This is the tightest spread in almost 11 years.
The Look Forward
The market has a variety of events to look forward to this week. The Treasury will be auctioning off several bills and notes. New Home Sales (May), Core Durable Goods Orders, Pending Home Sales and the final GDP revision for Q1 will also be released. Additionally, there are several members of the FOMC giving speeches over the next few days which should give additional insight into the economic outlook and future rate hikes.
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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