Yields trend higher while new tax bill impacts markets
Summary
As the House passed its version of the tax bill and a renewed threat of tariffs on the EU emerged, markets responded unfavorably with the S&P 500 retreating -2.58%. The bond market caught investor attention as yields trended higher, with the 10-year Treasury closing the week at 4.52%
Yields march higher
Longer-dated yields continued their march higher last week. The 10-year Treasury yield closed the week at 4.52% while the 30-year Treasury yield crossed the 5% mark, closing at 5.04% to end the week. Deficit spending and U.S. fiscal policy are impacting bond markets, and will likely see more volatility as the tax bill makes its way through the Senate. Deficit spending and fiscal discipline, or lack thereof, are the motivating factors behind the rise in yields, but this is not just a U.S. phenomenon. Yields are up across the globe, which will put fiscal policy in all countries front and center, as debt-fueled growth is not sustainable with higher interest rates.
Source: Chatham Financial
Other key news and releases
Mixed data continued last week. The U.S. leading indicators index continued its negative streak at -1%. Jobless claims ticked down to 227,000, beating expectations and remaining remarkably resilient. Preliminary PMIs came in well above expectations, with both the manufacturing and services index coming in at a reading of 52.3. On the housing front, existing homes sales were weaker than expected at four million. However, new home sales came in well above expectations at 743,000. Regional PMIs continued to show contraction in general. Yet, the prices-paid component across most of this reading, which increased substantially, is even more concerning. This will be important to monitor as an uptick in prices paid typically shows up in CPI in the coming months. Overall, the picture remains mixed, with a fair number of negative releases, but the positive news on PMIs and housing is certainly a good sign for the economy.
Regarding news of the week, the House passing of the tax bill took the majority of headlines. However, markets were reminded that U.S. trade policy can still move markets quickly with the S&P selling off on Friday’s news of 50% tariffs placed on the EU on June 1. President Trump delayed the implementation of those tariffs to July 9 on Sunday, citing a good call with EU leaders.
The week ahead
Durable goods, consumer confidence, revised GDP, and PCE will all be released this week.
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Disclaimers
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