Yields Steady Along a Flattening Curve Ahead of Inflation and Earnings Data

Yield curve flattens as equities close on record highs

The yield curve flattened slightly during trading ahead of the release of inflation data and the kick-off of 2Q earnings. The U.S. Treasury auctioned off $58 billion of 3y and $38 billion of 10y notes, with the 10y seeing stronger demand by investors. The 3y UST yield closed up 1 bp while the 10y UST closed flat from Friday’s close at 1.36%. Tomorrow earnings season will kick off with J.P. Morgan’s 2Q results, and CPI & wage data will be released in the morning. All three major equity indices closed higher, with the S&P and Nasdaq hitting record highs.

U.S. banks struggle to grow commercial loans in 2Q

The Fed H8 data released full 2Q loan data as banks get ready to announce earnings this week. Loan growth at both small and large banks did not fair much better compared to 1Q data. Large banks saw both their C&I and CRE portfolios contract in 2Q by 2.11% and 0.18%, respectively. C&I and CRE loans at large banks close 2Q down at 10.04% and 1.64% on a YTD annualized basis, respectively. Small banks C&I portfolios contracted 8.17% during 2Q as PPP loans rolled off balance sheets, while CRE loans grew at a slightly faster clip compared to 1Q at 1.47% during the quarter (1.34% growth in 1Q). YTD annualized growth for small banks’ C&I portfolios closed 2Q down 9.32%, while CRE has grown 5.65% on a YTD annualized basis.

COVID cases rise in the U.S.

U.S. COVID cases increased 47% over the previous week marking the largest weekly percentage increase since April 2020. Stalling vaccination rates and the highly contagious delta variant have been the primary causes of the increasing cases.