Market Updates

• Short Treasury notes consolidated their recent declines in yield as investors are awaiting this week’s Fed policy meeting and the upcoming G20 Summit scheduled to take place June 28th-29th. Two-year Treasury notes declined by two basis points last week from 1.86% to 1.84%.

• Retail Sales data came in stronger than expected helping to lower the probability of a Fed ease in July from 85% to a still strong 70%. The market is pricing in three fed funds cuts over the next twelve months.

• Inflation and inflation expectations are some of the primary issues the Fed will be discussing in their upcoming meetings. Core PCE, which is the Fed’s preferred inflation measurement, is trading at 1.6% YOY, well below their 2% target. The University of Michigan’s sentiment index showed that household inflation expectations over the next five to ten years fell from 2.6% to 2.2% -- the lowest ever recorded in the 40 years the survey has been conducted. The softening of inflationary data is highly concerning to the Fed and will likely be a key focal point of their discussions this week.