Treasury yields increased double digit bps last week as the Fed reinforced the possibility of “higher for longer” in regards to interest rate policy. In comments last week, Fed Chair Jerome Powell said “resilient economic growth raises the prospect of renewed inflationary pressures that could warrant additional rate hikes.” Market participants still expect the Fed to hold the fed funds rate at its current level at the next two FOMC meetings in November and December. Municipal yields followed Treasury yields higher as 10yr and 30yr municipal yields increased 23 and 29 bps, respectively. Volatility continues to persist in the short-term interest rate market as the SIFMA Index reset 100 bps higher last week to 4.19% from 3.19%. Municipal bond funds experienced outflows for the seventh consecutive week as $297 million exited funds in the most recent week.

The conflict in the Middle East led to a flight to quality from investors as Treasury yields rallied last week despite a hotter than expected September Consumer Price Index report. The September CPI report was released last week and caused the market a moment of pause as headline CPI printed above market expectations, 0.4% month-over-month actual versus 0.3% month-over-month expected. Month-over-month core CPI came in line with market expectations and on a year-over-year basis, core CPI fell to its lowest growth rate in two years. Municipal yields followed Treasuries lower as 10yr and 30yr municipal yields decreased 20 and 21 bps, respectively. Municipal bond funds experienced outflows for the sixth consecutive week as $780 million exited funds.