Daily Market Color

Yield Curve Steepens Ahead of FOMC Meeting

Yields increase along a steepening curve

As investors wrestle with growth and inflation concerns, swap rates and yields increased slightly across a steepening curve during trading. The 10y UST yield rose 1 bp on the day to close at 1.29%. Earlier in the day, the 10y real yield hit a record low of negative 1.27% as investors become more concerned on the spread of COVID’s delta variant and its effect on the economic recovery. Tomorrow starts the FOMC two-day meeting with investors looking for guidance on the Fed’s economic outlook in the face of rising COVID cases and plans on its bond purchasing program. Since the Fed’s June FOMC meeting the yield curve has flattened dramatically with the 10y UST yield dropping 28 bps as short-term rates remained virtually unmoved.

New home sales drop to the lowest level during the pandemic

New U.S. home sales decreased in June as demand weakens against rising prices. New home purchases fell 6.6% MoM to 676,000, well below economists’ expectations of 796,000.

Dallas Fed business activity index fell in July

The Dallas Fed’s general business index decreased in July to 27.7, down from 31.1 in June. A reading above zero shows growth. Raw materials and finished good continue to show robust price increases but showed some signs of abating with the raw material price index decreasing to 73.5 (down from 80.5) and finished goods decreasing to 40.9 (down from 42.8).

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