Daily Market Color

Extension of Debt Limit Drives Treasury Yields Higher

The yields on Treasurys surged today following the announcement of an extension to the US debt limit, which effectively eliminates the chances of a government shutdown come October 1st.  The new deal will extend funding through December 15th and serves as an add-on to the Hurricane Harvey relief package.  Swap rates/yields increased 1-6 bps across the curve, bringing the yield on the 10-year note back above 2.10%.  All three major US stock indices posted gains on the day in reaction to the debt-ceiling news, led by the S&P 500 which rose 0.31%.  The US dollar edged 0.1% lower against major currencies, falling to a two-year low vs. the loonie after Canada’s central bank raised its benchmark interest rate to 1%.  Crude oil futures continued to climb as US refineries resume operations post-Harvey.  WTI crude advanced 1% to $49.15/barrel during the trading session. 

 

 

US economic data reporting on the day kicked off with a slight widening of the trade deficit during July to $43.7 billion, lower than initial estimates of $44.6 billion.  The widening of the gap was generated by a 0.2% drop in imports and a 0.3% decline in exports.  The largest monthly import declines were recorded in petroleum and autos, which were partially offset by increases of capital goods and food.  July’s exports totaled $194.4 billion, weighed down mainly by declines in consumer goods.  The trade gap continues to be the largest with China at $33.6 billion, up 3% from the previous month to its highest level since August 2016.

 

 

Other key data on the day included the Institute for Supply Management’s non-manufacturing index, which displayed an acceleration in the services sector during August.  The index increased 1.4 points (+1.9 expected) to a reading of 55.3, representing a steady rebound from July’s 11-month low.  The new orders component provided the largest boost to the index driven by the retail, real estate and education industries.

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