The bond market is ending the week on a positive note as Fed Chairman Powell’s, long awaited, speech at the Jackson Hole Symposium does not disappoint. Chair Powell said “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data…” The Fed chief also acknowledged that “inflation is on a sustainable path back to 2%.” The market has fully priced in a rate cut at the September Fed meeting, expected to be 25 basis points, and is forecasting possibly 2 additional cuts by year end. The 10-year Treasury bond, which was trading at approximately 3.85% before Powell’s speech, is currently yielding 3.80%. The 2-year Treasury note has once again dropped below 4% on the rate cut expectations. Current coupon mortgages are better by approximately 12.5 to 18 basis points from yesterday’s pricing levels.
The only other economic release this morning was better than expected July New Home Sales. New Home Sales increased 10.6% to a 739k annual rate which was the highest level since May 2023. All four regions showed strength. Lower mortgage rates have contributed to this increase, as rates have dipped to 6.5% from a 2024 peak of 7.3% in April. The inventory of new homes at 462k, which fell to the lowest level since the start of the year, is still reflecting 7.5 months of supply.
Next week’s economic calendar will be relatively busy. Monday, we get July’s Durable Goods Orders expected at 4.2% vs. -6.7% prior and Dallas Fed Manufacturing Activity (-16.0). Tuesday, we will see June’s FHFA House Price Index, S&P CoreLogic 20-City HPI (.3%), August’s Conference Board Consumer Confidence Index (100.1) and Richmond Fed Manufacturing Index. Wednesday release is weekly MBA Mortgage Applications. Thursday, we will see Q2 second release of GDP (2.8%), Core PCE Price Index (2.8%), Initial Jobless Claims (235k) and July’s Pending Home Sales (.4%). We close the week on Friday with Personal Income and Spending for July (.2%, .5%), Core PCE Price Index (MoM .2%, YoY 2.7%) and University of Michigan’s Sentiment Index for August (67.9).
Below is a 5-day graph of the yield of the current 10-year bond:
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