U.S. Treasuries rallied sharply last week as a selloff in equities, driven by credit-risk concerns among heavily indebted AI infrastructure companies, prompted investors to shift into government bonds. 30-year Treasury yields declined by 17 basis points to 5.43%. Despite last week's rally, inflation data came in hotter-than-expected. September core CPI rose 2.6% year over year, versus 2.5% expected and PPI increased 6.3%. Municipal bonds outperformed Treasuries, as 10-year tax-exempt yields declined 23 basis points to 3.75% and 30-year tax-exempt yields fell 17 basis points to 4.95%. Demand also strengthened, with municipal bond funds recording $1.61 billion of inflows, up from $1.06 billion the prior week. Negotiated municipal supply is expected to total approximately $8.6 billion this week. Investors will focus on housing data, jobless claims, consumer sentiment and developments in the evolving Russia-Ukraine war.

U.S. Treasury yields recovered last week, with the 10-year yield declining four basis points to 5.24% and the 30-year yield falling three basis points to 5.60%. Fiscal concerns in France and rising oil prices initially pressured global bonds but easing geopolitical tensions and strong demand at Treasury auctions supported lower yields. Futures markets are pricing in a 99% probability of another Fed rate hike by December, underscoring expectations that rates may continue to rise. Consumer sentiment fell in October for the third consecutive month and buying conditions for household durable goods dropped to a record low due to concerns over higher interest rates. Tax-exempt bond yields were mixed last week, as two-year tax-exempt yields fell eight basis points to 3.30% while 30-year tax-exempt yields rose five basis points to 5.12%, diverging from the Treasury rally. Municipal bond funds recorded $1.06 billion of inflows, a positive signal following $608 million of outflows the prior week. Negotiated municipal supply is expected to total approximately $5.7 billion this week. Markets will focus on September CPI, with core inflation expected at 2.5%, followed by PPI, retail sales, industrial production and housing data.