U.S. Treasury yields moved higher last week as stronger economic data and continued Middle East tensions led investors to expect that interest rates will remain higher for longer. September’s composite PMI report showed business growth at its strongest level in over five years, reinforcing expectations for at least one additional Fed rate increase by year-end. Yields increased by approximately 6 to 16 basis points across the curve, with the 10-year and 30-year Treasury yields ending at 5.17% and 5.49%, respectively. Geopolitical risks remain elevated after the United States rejected Iran’s proposed truce over the weekend, which would have included reopening the Strait of Hormuz and resuming broader negotiations. This development reduced near-term hopes for de-escalation and may keep oil prices, inflation expectations and market volatility elevated. Municipal bonds sold off sharply last week, with yields rising by 18 to 48 basis points. Municipal bond funds recorded $633 million of inflows last week, reversing $1.81 billion of outflows the prior week. Municipal supply will remain strong with approximately $9.4 billion of negotiated supply coming to market this week. Investors will focus on employment data, core PCE inflation, Fed commentary and developments involving Iran.

U.S. Treasury yields moved higher last week as the Federal Reserve delivered a 25-basis-point rate hike, bringing the federal funds rate target range to 3.75% - 4.00%. The Fed raised its median year-end federal funds rate projection to 4.1%, signaling that an additional rate hike may be necessary. Strong retail sales and elevated oil prices reinforced inflation concerns last week, pushing the 10-year Treasury yield above 5.00% for the first time since 2023. The 30-year Treasury yield held steady at 5.34%, resulting in a flatter yield curve. Municipal bonds increased on the short end of the curve but remained comparatively stable at the long end, with 10-year tax-exempt yields increasing five basis points to 3.75% and 30-year yields unchanged at 4.87%. Municipal bond funds experienced $1.81 billion of outflows, compared with $193 million of inflows the prior week, marking the first week of outflows in 21 weeks. Municipal supply is expected to remain strong with approximately $8.2 billion of negotiated issuance coming to market this week. Investors will focus on durable goods orders, new home sales, consumer sentiment and additional Fed commentary.