Despite already low levels, U.S Treasury yields fell across the yield curve during July. Long rates fell the most, resulting in a flattening of the curve. TIPS break-even levels rose, as investors judged valuations as attractive given future inflation expectations.
The Federal Reserve Board reconfirmed its commitment to maintaining low interest rates and providing liquidity as needed to the bond market. Since the beginning of the pandemic response, the Fed’s balance sheet has grown dramatically, although emergency lending facilities have seen only modest use. As the month came to a close, Congress was engaged in debate over additional pandemic economic relief as extended unemployment benefits were set to lapse.
The European Union enacted new measures to support recovery, including the issuance of debt to fund the “Support to Mitigate Unemployment Risks in an Emergency” loan program. The U.S. dollar continued its slide, falling sharply and broadly during July. Gold continued to march upward.
The market began to focus again on economic data, which, for the most part, exceeded market expectations. However, quarter-over-quarter GDP numbers at record lows were shocking. COVID cases rose in several highly populated regions during the month, leading in some cases to renewed (or the potential for renewed) shutdowns.