U.S. Treasury yields rose last week as stronger employment data, rising energy prices and higher sovereign yields in Europe and Japan pressured domestic rates. The 10-year and 30-year Treasury yields increased 12 and 6 basis points to 4.78% and 5.24%, respectively. Friday’s stronger-than-expected employment report showed 162,000 jobs added, compared with 55,000 expected, pushing the market-implied probability of a September fed rate hike from 54% up to 60%. Municipal bonds underperformed treasuries, with tax-exempt yields increasing 14 and 15 basis points in the 10 and 30 year maturities, respectively. Municipal bond funds recorded $138 million of inflows last week, down from $1.44 billion the prior week. Negotiated issuance is expected to total $10.6 billion this week. Thursday’s PPI report and Friday’s CPI report will be the key economic data released this week and will help shape expectations ahead of the September 16 FOMC meeting.

The Treasury yield curve flattened last week, with the 2-year yield rising 10 basis points to 4.34% as Fed Chair Warsh’s comments reinforced expectations for tighter monetary policy. Warsh emphasized that, although the economy remains resilient, inflation is still well above the Fed’s 2% target. As a result, market participants are now pricing in approximately one and a half Fed rate hikes by year-end 2026. In contrast, the 30-year yield declined 5 basis points to 5.22%, supported by a sharp decline in oil prices and weaker consumer confidence data. Municipal yields increased modestly as the market absorbed heavy issuance and a higher-than-expected inflation reading. Municipal bond funds recorded $1.442 billion of inflows last week, up from $838 million the prior week. Negotiated issuance is expected to total approximately $9.6 billion this week. Over the weekend, U.S. forces struck Iranian rocket launchers near the Strait of Hormuz, pushing oil prices above $90 per barrel. The resulting increase in energy prices could place upward pressure on long-term yields this week. In addition to these developments, investors will focus on Friday’s employment report and additional Fed commentary.