Prior to today's robust June payrolls report, Treasury yields drifted toward the lower end of recent ranges this week, buoyed by falling oil prices and easing geopolitical tensions, which helped alleviate some inflation fears. At the same time, weakening consumer fundamentals (e.g., the sharp drop in personal consumption and softening real income growth) have reinforced the view that cracks in the economic foundation are beginning to surface. With the market having priced in only a modest probability of a July rate cut, investors remain focused on September as the more likely point that the Fed begins to cut rates, though that is contingent on forthcoming CPI and Q2 GDP data. Chair Powell’s emphasis on summer inflation prints, particularly the three scheduled before the September FOMC, has reinforced the Fed’s data-dependent posture.
We learned this morning that headline nonfarm payrolls surprised to the upside at 147k jobs added in June. Wage growth slowed, the labor force participation rate dipped, and jobless claims unexpectedly declined, painting a picture of a labor market that is likely decelerating in aggregate, but not yet flashing red. Combined, this set of data suggests the Fed is unlikely to act at the July meeting, but markets are increasingly hedging for potential action in the fall should disinflation persist and labor softness accelerate.
The Senate’s narrow passage of the “One Big, Beautiful Bill” stoked fears of increased U.S. debt issuance, with Vice President Vance casting the deciding vote. These concerns weighed particularly on the long end of the curve, where 30-year Treasuries have continued to underperform, pushing yields higher. Treasury yields briefly fell below their 200-day moving average, suggesting caution given the looming impact of deficit-driven supply and unclear policy implications.
President Trump announced a rare earth export deal with China, finalized a deal with Vietnam, and hinted at additional bilateral agreements, which initially supported risk assets. However, next week's July 9 expiration of the current tariff pause cast a shadow over the announcement, as businesses hesitated to commit capital amid the threat of renewed trade volatility. The lack of specificity in these deals and the unpredictable cadence of tariff policy has left markets skeptical about any near-term clarity in the Fed’s path forward.
In the credit markets, a localized shock rattled investor confidence. Multiple DSCR lenders suspended investment property lending in Baltimore City following reports of widespread appraisal fraud linked to a defaulting group of investors. Allegations included inflated property valuations coordinated through signaling mechanisms such as a $444 appraisal fee. The fallout triggered a swift and coordinated market response: blacklisting of certain appraisers and borrowers, internal portfolio reviews, and an effective freeze on new DSCR originations in the area. It's a reminder of how quickly trust can evaporate in pockets of the mortgage market.