7/29/2022 Market Commentary
Municipal bond yields declined during the week, with Fed Chairman’s statements after the July FOMC meeting and the release of the 2nd Quarter’s GDP data being the primary drivers. Yields saw very little movement during the first half of the week, as investors were in wait-and-see mode for this week’s FOMC meeting. On Wednesday afternoon, the Fed announced it will raise the federal funds rate by another 75 basis points, the second consecutive rate hike of this size. Fed Chairmen Jerome Powell spoke after the meeting, emphasizing that the Fed’s primary goal is to achieve price stability, even if doing so hurts the labor market and puts the economy into a recession. The 75 basis point rate hike did not provide any surprises to the market.
GDP data for the 2nd Quarter of the year was released Thursday morning, and showed that the U.S. economy shrank for the second consecutive quarter. GDP fell at an annualized pace of 0.9%, missing the market’s guess of a 0.5% gain. Municipal bond yields were pulled lower by a drop in Treasury yields, caused by increased fear of a weakening economy.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| July 22, 2022 | 2.39% | 2.99% |
| July 28, 2022 | 2.23% | 2.91% |
| Change (bps) | -16 | +5 |
Treasury yields were also heavily influenced by the rate hike announcement and the release of Q2’s GDP report. After the FOMC meeting, Powell told the press that while he does not believe the economy is currently in a recession, he does believe the labor market will need to take a hit in order to fight inflation. With the Fed willing to let the unemployment percentage rise, investors became increasingly fearful of a recession in the future. Thursday’s weak GDP reading amplified this sentiment. This has brought on an increase in demand for Treasuries on the short-end of the curve, and a decrease in demand for Treasuries on the long-end of the curve. As a result, the 10-year Treasury yield has come down in recent days, while the 30-year Treasury has slowly climbed.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| July 22, 2022 | 2.79% | 3.00% |
| July 28, 2022 | 2.69% | 3.04% |
| Change (bps) | -10 | +4 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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