Bond Market Update

Data recon

• Total construction spending decreased 0.3% month-over-month in May (Briefing.com consensus -0.2%) after an upwardly revised 0.2% decline (from -0.4%) in April. Total private construction was down 0.5% month-over-month, while total public construction was up 0.1% month-over-month. On a year-over-year basis, total construction spending was down 3.5%.
  • The key takeaway from the report is the same as the prior month: a downturn in new single-family construction, which is being pressured by higher costs, was the driver behind the weakness in residential spending.
    • Total residential spending decreased 0.5% month-over-month, while nonresidential spending fell 0.2% month-over-month.
    • In private construction, residential spending dropped 0.5%, with new single-family construction down 1.8% and multifamily construction unchanged. Nonresidential spending declined 0.4%, led by a 0.8% decline in commercial spending and a 0.6% decline in power spending.
    • In public construction, nonresidential spending was flat month-over-month, with highway and street spending down 0.3%.
• The June ISM Manufacturing Index increased to 49.0% in June (Briefing.com consensus 48.8%) from 48.5% in May. The dividing line between expansion and contraction is 50.0%, so the June reading suggests that activity in the manufacturing sector contracted at a slightly slower pace than the prior month.
  • The key takeaway from the report is that it has more of a stagflation aura about it (the new orders index and employment index both contracted at a faster pace, while the prices index increased at a faster pace) that will make the Fed's policy deliberations more challenging and the market's view of the Fed's thinking more frustrating.
    • The New Orders Index fell to 46.4% from 47.6% in May.
    • The Production Index jumped to 50.3% from 45.4% in May.
    • The Prices Index edged higher to 69.7% from 69.4% in May.
    • The Employment Index decreased to 45.0% from 46.8% in May.
    • The Backlog of Orders Index dropped to 44.3% from 47.1% in May.
    • The Supplier Deliveries Index slipped to 54.2% from 56.1% in May.
    • The New Export Orders Index improved to 46.3% from 40.1% in May.
• May JOLTS - Job Openings increased to 7.769 million from an upwardly revised 7.395 million (from 7.391 million)
• Yield check:
  • 2-yr: +5 bps to 3.77%
  • 3-yr: +6 bps to 3.74%
  • 5-yr: +5 bps to 3.84%
  • 10-yr: +2 bps to 4.25%
  • 30-yr: unch at 4.78%