Sales surprise, but new stimulus needed
Weekly bond commentary
The Federal Reserve may remain more involved and more accommodative for longer than had been expected earlier in the year.
The Fed released the minutes from the late July Federal Open Market Committee meeting, in which it indicated it continues to study internal policy framework and strategy, as well as how and what is communicated to the public. Policymakers also said the recovery following the initial shutdown faced a highly uncertain path, one dependent on a broad and sustained reopening of business activity. Because the latest monthly unemployment rate was more than 10%, they may need to continue current policies for longer than earlier thought. The coronavirus and the recovery are intertwined.
Markets have long known this interrelation, as seen by how trading reacts to news of virus cases and death counts. But official acknowledgement gives a firmer guide to future monetary policy.
Economic data released last week was a bit mixed, as housing permits, housing starts and existing-home sales rose well above expectation, but weekly jobless claims unexpectedly grew. Looking deeper into this development reveals that more people filed first-time unemployment claims, but fewer people continued to receive benefits, indicating that the unemployment rate fell from 9.5% to about 9.1%. That would be improvement, but only from still terrible levels.
Treasury yield movement was mixed this week from last, with the 2-year yield rising 2 basis points to 0.17%, the 3-year yield decreasing 1 basis point to 0.17% and the 5-year yield falling 3 basis points to 0.26%.