Daily Market Color August 2, 2021Yields Flatten as Growth Shows Cracks Long-term rates fall, as manufacturing growth slows The July manufacturing PMI dropped 1.1 MoM to 59.5 (a number above 50 indicates growth). Although this is the 14th consecutive month of growth, the MoM decrease suggests that future expansion could be limited. Swap rates and yields dropped across the curve on future growth concerns with the 10 UST yield dropping 5 bps to 1.17%. The yield curve continues to flatten with the 2s-10s spread now at 100 bps. The 2s-10s spread reached a high of 158 bps in March, and has slowly declined since, suggesting that investors view that the best growth is now behind us. Bank CRE lending off to a good start in 3Q CRE lending has picked up at both large and small banks to start the 2H of the year, with small banks seeing the lion’s share of the growth. Bank managements have guided to building pipelines during the first half of the year, and are expecting growth to pick up sometime in 3Q and 4Q of this year. Small banks’ CRE lending has grown 6.16% QTD annualized, showing signs that bank pipelines may finally be materializing into closed deals. Fed Governor Waller says September taper may be necessary Fed Reserve Governor Waller said today he could back an announcement on scaling down the Fed’s bond purchasing program if the next two month’s jobs reports show continued improvement. Waller said if the jobs reports come in as he is expecting that the Fed “should go early and fast” on tapering so the Fed can be prepared to raise rates in 2022 if it decides too.