Prior Week Summary
Rates continued to rise on the long-end of the curve last week, with the 10-year Treasury note reaching 3.13% intraday on Thursday as incoming economic news was viewed as positive in aggregate. The news of the week kicked off with the Commerce Department reporting a 0.3% increase in retail sales in April, following a positively revised 0.8% gain in March. However, when excluding sales related to the automobiles and fuel sectors, sales also increased 0.3% for the month. Consumer spending is an important component of the GDP calculation, and the retail control group which factors directly into the growth figures was strong, increasing by 0.4% in April.
Separately, the Federal Reserve reported that industrial production increased 0.7% on a month-over-month basis in April, benefitting from rising energy prices. The gains in production were broad-based, with the manufacturing sector gaining 0.5%, mining advancing 1.1%, and utility output rising by 1.9% for the month.
Lastly, the Conference Board reported that the Leading Economic Index (LEI) rose 0.4% in April, benefiting from an expanding workweek, which overwhelmed the negative impact of stock prices on the index. The positive economic developments continue to be reflected in expectations for a continuation of the Fed’s tightening campaign. As of this writing, there is a near 100% probability of a Fed rate hike at the June meeting.
The Look Forward
The market will be looking forward to dissecting the FOMC meeting minutes on Wednesday, as well as paying attention to the full roster of Fed speakers throughout the week.
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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