Yields Rise as Markets Further Digest Powell’s Speech

Yields higher ahead of PCE. UST yields rose gradually this morning to intraday highs (up ~4 bps) before paring some of the move in the afternoon. The move was a slight reversal of Friday’s price action, where yields plummeted after Chair Powell hinted at a September rate cut. Ultimately, the 2-year yield closed 3 bps higher at 3.72% and the 10-year closed up 2 bps at 4.28%. Markets are largely looking ahead to July PCE data, the Fed’s preferred inflation gauge, which will be released on Friday. Core YoY PCE is expected to rise to 2.9%, which would be the highest level since February and a 0.1% climb from June.

July new home sales data beats estimates. New home sales exceeded expectations in July, coming in at 652k versus an anticipated 630k. However, this figure was down 0.6% MoM after June’s ~29k upwards revision. New home inventory remains elevated, hovering around its highest level since 2007, pushing two-thirds of builders to use financial incentives, such as price cuts, to offload properties. Sellers are being forced to acquiesce as homebuyers increasingly turn to Federal Housing Administration-backed loans, where they can often secure better rates. With builders cutting their prices to compete, the median new-home sale price is now below the median existing-home sale price, an inverse of historical norms. Some expect high inventories and elevated rates to dampen housing market activity and home prices in the coming months.

South Korean President Lee visits the White House. South Korea’s leader, Lee Jae-myung, met with President Trump today to renegotiate the US – South Korea trade agreement that set a 15% baseline tariff back in July. While Trump indicated that the tariff rate would remain unchanged, saying, “They’re going to make the deal that they agreed to make,” there was significant progress on other matters. Trump acknowledged Lee as a strong representative and showed support in helping South Korea find peace with North Korea. The discussion also extended to a shipbuilding agreement, with Trump pledging to purchase South Korean ships and Lee hinting that South Korea would help to rebuild the American shipbuilding industry. Looking ahead, the South Korean government is expected to reveal a $150 billion investment plan into private American companies.