Rates rose as the month began, only to move back as the month progressed. Ultimately, the yield curve had a modest “bearish flattening” for the month with 2-year Treasury yields rising 9 basis points (bps), while 30-year yields increased by only 2 bps. The 2- to 10-year yield spread was virtually unchanged.
The month began with a strong U.S. equity rally as global growth sentiment improved and U.S. – China trade talks made progress. The Federal Reserve gave indications that its recent spate of rate-cutting was coming to an end, if not already finished. Data releases early in the month showed the consumer in good shape and employment steady. As the month wore on, economic data began to show some disappointments, with industrial production and housing data coming in below expectations. Trade deal uncertainty also returned.
Two items of note: first, yields in Europe and elsewhere have been increasing of late, although a fair portion of global government bonds are still at negative rates. Second, in the U.S., inflation remains well below the Fed’s 2% target, and Fed officials have indicated that no increase in rates will be necessary until and unless inflation takes a significant, sustained turn upwards.