Geopolitical tensions surrounding the conflict with Iran continue to serve as the primary driver of market sentiment and price action. After the prior week’s sharp sell-off in rates, sparked initially by stronger-than-expected employment data, the market extended that move into midweek, with CPI reinforcing the view that inflation relief remains elusive. By Wednesday, rates had climbed further, reflecting a growing acceptance that the path back toward the Fed’s target may be longer than previously hoped.
Then, almost on cue, the narrative shifted.
By Thursday, headlines pointing to progress in peace talks triggered a swift reversal across asset classes. Rates rallied, risk sentiment improved, and equities regained footing. To be fair, markets have seen this movie before - similar headlines have surfaced repeatedly over recent months, each time prompting a reflexive reaction. Yet the fundamental question about peace remains unchanged, and is perhaps best captured by Howie Mandel’s famous refrain: “Deal or No Deal?”
Adding to the week’s momentum, on Friday, the highly anticipated “generational important” $75 billion SpaceX IPO injected fresh energy into what is typically a quieter early summer trading environment. The aftermarket debut did not disappoint, opening at $150 -more than 10% above its $135 offering price, trading as high as ~$176 before ending the day at ~$160. Demand reportedly exceeded $350 billion, leaving many orders unfilled, creating the aftermarket demand, and boosting the price significantly.
Whether that enthusiasm can persist is another question entirely. Valuations appear stretched relative to underlying fundamentals, but history has shown that betting against Elon Musk has rarely been a winning strategy.
In rates, the 4.50% level on the 10-year Treasury continues to act as a critical pivot point. While not at the extremes of the recent range, it remains an important psychological and valuation threshold for equity markets, effectively anchoring the “risk-free” baseline for valuations and borrowing costs.
After surging well above that level the prior week, yields retraced sharply, finishing around 4.48% by week’s end. Unsurprisingly, equities followed suit - rebounding after a sharp drawdown. That said, for the first time since the conflict began, markets failed to notch new all-time highs for a second consecutive week. Whether this signals the beginning of a more typical seasonal pullback or simply a temporary pause remains an open question.
From a positioning standpoint, the desk’s short Treasury futures exposure was unwound after triggering buy-stops as rates reversed direction, locking in modest gains. This illustrates a broader point: the current environment - dominated by geopolitical uncertainty - makes it increasingly difficult to maintain conviction with positions through headline risk. Markets remain highly sensitive to incremental developments, whether from official channels or presidential commentary, with sentiment capable of shifting abruptly.
This week, we look forward to the first of Chair Warsh’s FOMC meetings, expecting rate policy to remain unchanged and guidance to be tempered, while anticipating a slightly less-dovish stance given recent employment and inflation data. Though his inaugural press conference will be closely watched, no fireworks are expected, so markets will likely not react sharply to his comments.
From the Municipal Desk (with contributions from Ryan Riffe):
The municipal market was relatively quiet in the early part of the week, as participants remained sidelined ahead of key CPI and PPI releases on Wednesday and Thursday. Activity picked up midweek, however, as the largest intra-day bid-wanted volume of the year hit the market. After holding up well against the prior week’s Treasury weakness, municipals began to show some signs of fatigue.
In the primary market, negotiated transactions continued to see strong demand, with deals oversubscribed and frequently repriced more tightly. Competitive offerings performed even more impressively, clearing at levels through both negotiated deals and comparable secondary market spreads.
Looking ahead, the new issue calendar is expected to remain steady, with approximately $11–$12 billion projected for the upcoming week despite the holiday-shortened schedule surrounding Juneteenth. As the market moves toward the end of the month and into the July 4th holiday period, supply is expected to gradually taper.
On the demand side, mutual fund and ETF flows remain constructive, extending a streak of seven consecutive weeks of inflows, albeit at a more moderate pace than earlier in the month. Reinvestment demand continues to provide a steady bid as June proceeds. While ratios cheapened modestly toward week’s end, the move is unlikely to deter investors, particularly given the continued appeal of tax-exempt yields. Clients remained active in deploying cash, and we expect demand to remain resilient in the week ahead.
Final MMD Read (5% Coupon)
2027: Unchanged
2028-2031: 1bp bump
2032-2039: 2bp bump
2040-2045: 1bp bump
2046-2056: Unchanged
US TSY 2yr 4.077% 59%
US TSY 3yr 4.125% 60%
US TSY 5yr 4.202% 63%
US TSY 10yr 4.479% 67%
US TSY 30yr 4.969% 87%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
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