Rates Rise After June Manufacturing PMI Hits a Record High

Rates rise after June manufacturing PMI hits a record high

Treasury yields and swap rates ended the day 1-3 bps higher across the curve following today’s soft Treasury auction and blockbuster PMI figure – the 10-year UST yield closed 2 bps higher at 1.48%.  Major equity indices were mixed – the S&P 500 and DJIA fell 0.1% and 0.2%, respectively, while the Nasdaq increased 0.13%.

US manufacturing PMI rose to a record high in June

Despite supply restrictions, the manufacturing index increased from 61.5 to 62.6.  With prices paid by manufacturers at an all-time high, backlogs continue to grow, with IHS Markit noting “average supplier delivery times lengthened to the greatest extent on record.”  The services index dropped to the second highest reading of 64.8 from 70.4 in May as labor shortages accounted for the majority of the decline.

Fed’s Bostic says the central bank could begin tapering its asset purchases within the next few months

When asked about a timeline for rate hikes during his speech earlier today, Bostic commented, “Given the upside surprises in recent data points, I have pulled forward my projection for our first move to late 2022.” Bostic added, “If the next few months print at levels comparable to what we have seen recently, I feel we will have reached that standard. Given that is a distinct possibility I think it is fully appropriate to be planning to start the tapering process.”  His comments align with those of multiple other Fed officials, most recently with San Francisco Fed President Mary Daly, who yesterday said she believes the tapering process will likely begin this year.

New home sales fell by 5.9% in May

Sales of new homes fell to a 769,000 annualized pace from 817,000 in April, falling well below the 865,000 expected rate.  Low home supply and rising prices continue to be the driving factors behind the decline, although the 330,000 new homes on the market in May were the most since July 2019.  The median sales price hit a record high of $374,400, leading to a sharp decline in mortgage applications from January’s highs.