Treasury yields spiked in the past few days, “giving back” the entire recent rally. The 10 year closed at 2.63% today, back up to last Tuesday’s levels. Some of the selling was less buying after a month/quarter end rally in purchases. As we enter the third quarter of the year, economic reports are being closely watched for signs of growth and/or inflation. Tomorrow’s employment reports may move markets, if the non-farm payroll increase exceeds 250,000 or is well below 200,000, the treasury could move significantly. The yield curve is quite flat, with the difference between 5 and 30 year yields approaching the lowest level since 2009. The shorter term treasuries are more sensitive to expectations of the next raise in short term rates by the Fed, while the long term rallied on geo-political tensions. Signs of increased economic activity and inflation should cause some steepening. However, a continuation of the recent “mixed bag” of reports (example: the ISM showed slower than expected June activity but higher than expected new orders), are expected to keep the 10 year below 3.00% for the near term….. although unexpectedly high inflation signs could push yields higher than the consensus as that may force the Fed’s hand… …stay tuned… David R. Pascale, Jr.
