US Treasuries end mixed Friday; markets closed for Independence Day

The US Treasuries saw mixed performance to finish off the week with little change in the short-end being contrasted by additional buying further out. This week has clearly been defined by Brexit fallout but as the dust settles (not to assume there are not more headlines to be seen on this issue), markets now look to see how policymakers are likely to respond. Little has been seen from the Fed, already dealing with slower employment conditions.

The US markets are closed for the Independence Day holiday on Monday. On Friday, the yield on the benchmark 10-year Treasury note decreased further towards 1.45 percent, the short-term 2-year yield held unchanged on the session, holding just below 0.60 percent.

Federal Reserve Vice Chairman Stanley Fischer (voter in 2016) said that the FOMC is watching closely as it begins preparing for the July meeting adding that the Fed will have a better sense of financial conditions as the meeting approaches. Overall, Fischer expects the economy to remain on the slow growth path that it has been on for some time.

However, Fed Vice Chair Fischer appears to take a more guarded approach, suggesting that the Fed is watching market conditions like everyone else, expecting to have a greater understanding of the UK referendum’s impact closer to the July meeting (though we see it as very much an extreme outside shot that the FOMC will be doing anything regarding rates in the near-term).

With respect to the UK’s Brexit vote, Fischer added that it is probably less important for the US than other countries. He further added that the Fed has no plans to move in the direction of negative interest rates in order to provide accommodation.

In terms of data, the final Markit US manufacturing PMI reading increased to 51.3 for June (preliminary: 51.4), versus the 50.7 reading seen for May. This comes in just above market expectations for a 51.2 result. Despite the downward pressure seen in the headline reading in recent months, this series remains supportive for manufacturing overall.

Similarly, the June Institute for Supply Management estimate of US national manufacturing conditions pushed higher on the month to 53.2, versus the unrevised 51.3 reading received in May, above market expectations for a 51.3 result.

Meanwhile, prices paid pushed lower to around 60.5 (down from 63.5). Alongside the stronger headline measure, more support for future prospects was seen via new orders to 57.0 (up from 55.7), production to 54.7 (up from 52.6) and employment to 50.4 (up from 49.2).

Alongside the expansion reading seen in the employment component we anticipate modest improvement will be seen in the manufacturing component of the June employment report next Friday.

Markets now look ahead to the June employment report next Friday, which could go a long way in getting that series back on track (at least closer to satisfactory).