UMBS have opened down 9 bps on the morning, so far.   S&P Futures are flat.

The absence of relevant bond market movers has been a theme all week.  Wall Street’s tech rally, led by Nvidia’s rebound, faced a pause after Fed Governor Michelle Bowman indicated that interest rates should stay high for a while. This caused the S&P 500 and Nasdaq 100 to lose gains, with the 10-year Treasury yield rising and the dollar strengthening.

Domestically, market activity has been quiet, but overseas developments added pressure. Higher inflation in Australia and concerns over potential intervention from Japan, due to the weak USD/Yen, led to notable movements in the Yen and sporadic Treasury selling.

Fed officials predict minimal rate cuts this year, with a more substantial reduction by 2025. However, the market is hedging against a more aggressive easing, betting on a possible rate drop to 2.25% within the next nine months.

Consumer confidence slipped in June, according to the Conference Board. The Present Situation Index increased, while the expectations index fell. The expectations index has been in recessionary territory for the past 5 months.   Future inflationary expectations did slip from 5.4% to 5.3%. Still consumers are in a generally dour mood.

We are seeing a lot of private equity transactions in the multi-family space. KKR is buying 5,200 units from Lennar in a $2.1 billion transaction. This follows deals from Blackstone, which bought an apartment REIT and Brookfield which bought 7,000 units earlier this year. It sounds like the attraction is the decline in the premium sellers are demanding compared to the days when interest rates were much lower.

Using Treasury yields as a road map, the past week and a half has been excruciatingly sideways for the bond market.  Yields haven’t been over 4.29 during domestic hours for more than a few minutes and never far under 4.21.  Of those two levels, it’s the 4.29% “ceiling” that’s seen more activity and today brought a breakout–albeit a modest one.  Yields were just under 4.32% at the 3pm close, but not for reasons that are inspiring or significant as far as the classic bond-watching playbook is concerned.

It’s not that they don’t matter, only that things like Japan’s potential currency intervention and high Australian inflation are the smallest potatoes next to things like big ticket U.S. economic reports such as this Friday’s PCE, or several of the key reports in the first 2 weeks of July.  A shift in trends in response to that data would be more of a concern.  This is just an unlucky break on a small scale for now.

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