Bond Market Update

Data Recon

• The ISM Non-Manufacturing Index decreased to 48.8% in June (Briefing.com consensus 52.5%) from 53.8% in May. The dividing line between expansion and contraction is 50.0%, so the June reading reflects services sector activity contracting (for the second time in the last three months).
  • The key takeaway from the report is that it signals a contraction in activity in the nation's largest sector, which should reinforce the market's expectation that the Fed will start cutting rates before the end of the year.
• Factory orders declined 0.5% month-over-month in May (Briefing.com consensus 0.3%) following a downwardly revised 0.4% increase (from 0.7%) in April. Excluding transportation, factory orders declined 0.7% on the heels of a 0.5% increase in April. Shipments of manufactured goods also fell 0.7% after increasing 0.84% in April.
  • The key takeaway from the report is that business spending dropped off in May, which is consistent with a slowdown in manufacturing activity that was seen in the advance report for durable goods.
• Yield Check:
  • 2-yr: -6 bps to 4.68%
  • 3-yr: -8 bps to 4.47%
  • 5-yr: -9 bps to 4.31%
  • 10-yr: -9 bps to 4.35%
  • 30-yr: -9 bps to 4.52%