Last week seemed to be marked with the realization that interest rates were going to stay higher for longer, especially in the long end of the Treasury yield curve. In a nod to the fact that supply is going to be a problem going forward, real 30-year yields (TIPs) ended the week near 2%, the highest level in 14 years. As real yields are adjusted for inflation, the real yield represents the true premium investors need to receive to hold longer-end Treasuries. Last week Treasury auctioned off $103 billion 3-year, 10-year and 30-year notes/bonds. I kind of got it backwards with my performance call last week. I thought the auctions would be a bit shaky on “the day of” but would recover by weeks end. Instead, the 3-year and 10-year auctions were strong (30-year tailed a bit) but by Friday’s close all three were underwater. On Thursday we received a relatively benign July CPI report. Inflation continues to cool somewhat but still remains stubbornly high, especially given the hyper-aggressive monetary policy over the last 18 months. Stocks were mixed with the more interest rate sensitive NASDQ underperforming the S&P.
We come in this morning with equities up small while Treasury yields continuing to head higher. Fed-Speak will be generally light this week with only Kashkari speaking tomorrow. On Wednesday we get the release of the July FOMC minutes. For economic data, we receive July Retail Sales on Tuesday and Housing Starts Wednesday.
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