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U.S. Treasuries posted a third consecutive weekly gain last week as renewed stress in French sovereign debt, escalating Middle East uncertainty and continued credit weakness among highly leveraged AI infrastructure companies fueled demand for government bonds. The 10-year Treasury yield declined nine basis points to 5.00% and the 30-year yield fell 10 basis points to 5.33%. Housing data reinforced concerns about economic momentum, as September pending home sales plunged 7.3% to their lowest level since records began in 2001 and homebuilder confidence fell to a 14-year low. Fed funds futures are pricing a 10.5% probability of another rate hike this week and an 80% probability of another rate hike in December. Municipal bonds outperformed Treasuries, as 10-year tax-exempt yields declined 23 basis points to 3.52% and 30-year tax-exempt yields fell 10 basis points to 4.85%. Municipal bond funds recorded $1.60 billion of inflows, in line with $1.61 billion the prior week. Negotiated municipal supply is expected to be lighter at approximately $3.6 billion this week. Investors will focus on Wednesday’s FOMC decision, where rates are expected to remain at 3.75% - 4.00%, along with the European Central Bank rate decision, Q3 GDP and September core PCE inflation.

U.S. Treasuries rallied sharply last week as a selloff in equities, driven by credit-risk concerns among heavily indebted AI infrastructure companies, prompted investors to shift into government bonds. 30-year Treasury yields declined by 17 basis points to 5.43%. Despite last week's rally, inflation data came in hotter-than-expected. September core CPI rose 2.6% year over year, versus 2.5% expected and PPI increased 6.3%. Municipal bonds outperformed Treasuries, as 10-year tax-exempt yields declined 23 basis points to 3.75% and 30-year tax-exempt yields fell 17 basis points to 4.95%. Demand also strengthened, with municipal bond funds recording $1.61 billion of inflows, up from $1.06 billion the prior week. Negotiated municipal supply is expected to total approximately $8.6 billion this week. Investors will focus on housing data, jobless claims, consumer sentiment and developments in the evolving Russia-Ukraine war.