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July 2007 <br />MARKET REVIEW <br />Ma~rcE-r sur~nn.~aR~r <br />Bond yields were mostly higher in June. While yields on bonds with maturities <br />between 6 months and two years declined, yields on most other maturities showed <br />increases. The market's recent activity indicates that participants may be losing <br />hope for anear-term interest rate cut by the Federal Reserve. As a result of last <br />month's market movements, the yield curve has moved to a more normal shape, <br />with the hig hest rates being found in the thirtyyearsector. <br />The economy continued to display mixed signals in June. The Non-Farm Payroll <br />number was slightly strongerthan expected, showing an increase of 132,000 new <br />jobs, and the unemployment rate remained at 4.5 percent. Both figures indicated <br />that the job market continues to display moderate growth. Inflation readings <br />remain higher than the FOMC would prefer. Housing data weakened during the <br />month, indicating that the housing market may not be ready to begin a recovery. <br />Going forward, market participants will continue to look for signs as to whether or <br />not economic activity is poised toreboundinthesecond halfoftheyear. <br />The FOMC took no action at its June 28th meeting, leaving its fed funds target at <br />5.25%. The next FOMC meeting is on August 7th, and most market participants <br />anticipate noaction on interestrates. <br />s.s- <br />5.0 - <br />4.5 - <br />4.0 - <br />~~ ~ ~ JUN 07 ®MAY 07 lUN D6 <br />°~a~: <br />The yield curve shifted higher in June as the curve moved to a more normal <br />positive slope. <br />'-«~~ <br />3 Month <br />4.80 <br />4.73 <br />0.07 <br />2 Year 4.86 4.91 (0.05) <br />3 Year 4.88 4.87 0.01 <br />5 Year 4.92 4.85 0.07 <br />10 Year 5.02 4.89 0.13 <br />30 Year 5.12 5.01 0.11 <br />w <br />Syr - 2yr T-Note <br />0.06 <br />(0.06) <br />0.12 <br />1 Oyr - 2yr T-Note 0.16 (0.02) 0.18 <br />Source- Bloomberg <br />