U.S. Treasury yields rose last week, with 10-year and 30-year yields up 11 basis points. Yields were even higher earlier in the week, as investors reacted to comments from Fed Chair Warsh suggesting interest rates may stay higher for longer. However, yields pulled back late in the week after a weaker-than-expected jobs report showed hiring slowed significantly, with only 57,000 jobs added versus 113,000 expected. Despite the volatility in Treasuries, the municipal market remained very resilient, with 10-year and 30-year yields declining 1 and 3 bps, respectively. Investor demand for municipal issuance remains strong, with $1.67 billion flowing into municipal bond funds last week, marking the 11th consecutive week of inflows and bringing the year-to-date total to over $31.6 billion. Municipal issuance is expected increase this week to $10.3 billion. Looking ahead, investors will be watching for the release of the Fed’s June meeting minutes to better understand the new leadership’s policy direction. Markets are currently pricing one 25 bp rate hike by year-end 2026, with roughly 20% odds of a second hike.

U.S. Treasuries finished strong last week, with the 10-year yield at its lowest level in nearly eight weeks. Municipal yields followed as long-term yields declined by 6 bps. Lower yields were driven primarily by lower oil prices and technology-related volatility in the equity markets. Core PCE inflation, the Fed’s preferred measure of inflation, rose to 3.4% annually in May, the highest since 2023 and still well above the Fed’s 2% target. The markets are now pricing in an 80% chance of a Fed rate hike by December. Minneapolis Fed president Neel Kashkari said he moved from expecting one cut in March to one hike by year-end. Municipal issuance is expected to be $5.06 billion this week, a lighter volume due to the holiday-shortened week ahead of Independence Day. Municipal bond funds recorded $633 million of inflows last week. The arrival of reinvestment money from investors receiving July 1 principal and interest payments is expected to provide a boost to municipal demand. This week, market participants will monitor the June employment report on Thursday, ISM Manufacturing PMI, and Fed chair Kevin Warsh’s participation in the ECB Forum on Central Banking for further guidance on U.S. monetary policy.