U.S. Treasury yields ended a volatile week lower across the front end of the curve, while the long end remained largely unchanged. The week began under pressure from rising oil prices and geopolitical tensions, but sentiment improved after softer-than-expected June inflation data cooled rate hike expectations to one 25 basis point hike by year-end with a 26% chance of a second hike in 2026. Despite the rally in Treasuries, municipal yields moved higher and became cheaper relative to Treasuries. Municipal supply and demand remain strong, with municipal bond funds recording $1.4 billion in fund inflows last week and negotiated issuance expected to exceed $9 billion this week. The Federal Reserve will enter a quiet period ahead of their July 28-29 meeting, and the economic calendar is relatively light this week. However, market participants remain cautious, as renewed conflict and attacks involving Iran over the weekend may drive continued volatility and keep energy prices in focus. Overall, markets will continue to be headline driven between the conflict in the Middle East and future inflation readings.

U.S. Treasury yields rose 7-10 basis points across the curve last week, with the front end under the most pressure as short-term yields finished just below their highest levels of the year. The move was driven by resurfacing inflation concerns after the New York Fed's survey showed higher inflation expectations, along with renewed U.S.-Iran tensions that pushed oil prices higher. Markets are now pricing one 25 basis point rate hike by year-end 2026, with roughly 50% odds of a second rate hike. Municipal yields followed Treasuries higher last week, with tax-exempt yields increasing by 2-7 basis points across the curve. Municipal bond funds recorded $1.5 billion of inflows last week, extending the streak of positive flows and reflecting continued demand in the municipal market. Municipal negotiated bond issuance is expected to be lighter this week at roughly $6 billion. This week’s economic calendar is dominated by Fed Chair Warsh's congressional testimony and a busy economic slate headlined by June CPI, retail sales, industrial production and housing data.