The Treasury yield curve flattened modestly last week as front-end yields rose, while the 30-year Treasury yield decreased by 5 bps. Municipal yields moved higher, with 10-year yields increasing by 5 bps and 30-year yields by 4 bps. Municipal bond funds recorded $1.5 billion in inflows last week, marking the fifth consecutive week of positive flows and the third consecutive week of inflows exceeding $1.0 billion. Treasury yields fell Tuesday morning amid renewed hopes for a peace agreement between the United States and Iran. Both countries noted progress in talks over the weekend, and Secretary of State Marco Rubio said an agreement was “95% there.” The market remains heavily headline-driven and will likely continue to be until the conflict concludes.

Treasury yields increased last week following higher-than-expected consumer and producer inflation data. April CPI rose 0.6% for the month, bringing the one-year pace to 3.8% — the highest since May 2023. Importantly, core CPI, which excludes food and energy, increased to 2.8% on an annual basis, remaining well above the Fed’s 2% goal. Municipal yields followed Treasuries higher, with yields increasing throughout the curve. Municipal bond funds experienced $1.3 billion in inflows last week, following the prior week’s inflows of over $1.8 billion; notably, municipal bond funds have seen inflows in 18 of the last 20 weeks. This week, market participants will continue to monitor news out of Iran as well as the April FOMC minutes, which will be released on Wednesday. With inflation remaining persistent, markets are now projecting a greater chance of a rate hike by the end of the year than a rate cut.