Taper Talk Pulls Long Term Yields Lower

Long-end of the curve lower despite Fed taper talk

The July FOMC minutes revealed the Fed has met its inflation goals, signaling a tapering announcement could be upon us sooner than previously expected.  Officials discussed the potential upside risks to inflation, with several forecasting the current elevated levels could spill into next year.  Despite talk of higher inflation and quicker tapering, longer-term yields were 1-2 bps lower on the day – the 10-year UST yield closed 2 bps lower at 1.24%.  Major US equities were mixed – the S&P 500 and Nasdaq added 0.1%, while the DJIA lost 0.2%.

Jobless claims decline to a pandemic low

348,000 jobless claims were filed last week, down 29,000 from the week prior.  The figure beat Bloomberg’s forecast of 364,000 and marked the fourth consecutive weekly decline.  Continuing claims also fell to a pandemic low, dropping by 79,000 to 2.82 million.  Under all unemployment programs, 11.74 million people are still collecting benefits, but economists expect the figure to decline significantly after pandemic-related programs expire in September.  Despite the recent downward trend in claims, the labor market is still 6 million people short of the pre-pandemic level.

August Philadelphia Fed Manufacturing index falls to its lowest level in 2021

The Philly Fed Manufacturing index dropped to 19.4 from 21.9 in July, falling below Bloomberg’s expected level of 23.  Ever since it hit a 50-year high in April, the index has been on a downward trend due to supply constraints and labor shortages.  The prices-received index rose to its highest level since 1974 after firms passed on higher costs to consumers.  Despite the price pressures, factory activity remained robust, supported by an uptick in new orders.