Member Services Desk Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending August 8, 2025.

Economist Views

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The past week’s economic data did not reveal any surprises except a slight uptick in the Continuing Jobless Claims figure (increase of 38k from the prior week).  In the week ahead, the CPI report will be the main attraction and hold the most potential to move markets. Given the August 1st weaker-than-expected employment report for July, a lower CPI reading could ease rate-cut hesitancy for more FOMC members. A strong CPI reading, however, will add to the Fed’s challenge of managing policy in a time of increasing stagflation signs.

NFIB Small Business Optimism:  The July reading for the index is expected to remain steady, with a slight increase to a reading of 99, remaining above the 50yr + average of 98.

CPI MoM:  Consumer Prices for June showed a positive reading of +0.30%, forecast expectations for July are +0.20%.  Excluding the volatile Food and Energy components, the expectation is a 0.30% rise.

PPI Final Demand MoM:  Producer Prices are expected to show a rise month-over-month of 0.20% following a flat reading for June.  Excluding Food & Energy PPI is expected to show the same 0.20% rise MoM.

Initial and Continuing Jobless Claims:  Initial claims for last week revealed an 8k rise week-over-week; however, continuing claims were up 38k.  Claims will continue to be closely watched for any potential weakness in the economy.

Retail Sales Advance MoM:  Retail Sales for July are expected to show a rise of 0.50% month-over-month following a stronger reading of 0.60% for June.

Empire Manufacturing:  Last month’s release showed a strong reading of 5.50 with improving & expanding conditions, while the forecasted expectation was a decrease of 8.30 with worsening and contracting conditions.

U of Michigan Sentiment:  The preliminary reading for August is expected to show a slight increase to 62.30 from the previous 61.70 in the sentiment index for consumers.

Key Market Trends

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CHART 1 UPPER LEFT Sources: NY Fed; FHLB-NY. While not as extreme as June’s quarter-end move, SOFR did experience a mini-spike at July’s month-end, as it rose from 4.28% on July 23rd to 4.39% to close the month. The trend higher in SOFR at month and quarter-ends is a topic that we have covered intermittently in this publication. The trend is driven by a few factors. GSE cash, from mortgage payments, increases in the first few weeks of each month but subsequently leaves the liquidity markets just prior to MBS coupon payments due on the 25th of the month. Dealer financial institutions, meanwhile, tend to shy away from balance sheet usage at month-ends. Further spurring upward pressure on financing rates are UST auction settlement dates at or near the end of the month. The upward pressure on SOFR can directly impact our Overnight advance levels, and the pressure tends to subside by the week after the month or quarter-end. For members carrying overnight balances through month-ends, moving/extending a portion of it into the short-term space can potentially be a strategy to reduce exposure to SOFR spikes.

CHART 2 UPPER RIGHT Sources: Bloomberg. Top pane is yield (LHS, %); bottom pane is change (LHS, bps). As of late Thursday, the UST term curve was 8-22bps lower across the curve from the week prior, with the T-2 lower by 22bps. As of late Thursday afternoon, the market priced end-2025 Fed Funds at 3.72% or 28 bps lower than a week ago. The market’s end-2026 forward is ~3.02%, or 19 bps lower than last week.

CHART 3 LOWER LEFT Sources: Bloomberg. As can be clearly seen here, net T-bill supply has turned decidedly in the past month after being negative for most of the first half of 2025. The negative net T-bill supply had underpinned demand for short-end paper and benefited our funding spreads, but the landscape has changed since the debt ceiling was raised via the budget bill signed on July 4th. Net T-bill supply has now turned positive, as Treasury rebuilds its General Account. This change should serve to reduce liquidity in the financial system, and it has also led to some spread widening in our paper.

CHART 4 LOWER RIGHT Sources: Bloomberg. Money Market Funds (MMFs), however, are expected to absorb sizable portions of the fresh T-bill supply, as they switch some of their substantial AUM from repo to now more attractive T-bills and thereby likely contain any further severe impacts for bills and/or our paper. As seen here, MMF total AUM (White, RHS, $trn) rests near record levels, driven by increases in both Government MMF AUM (Gold, RHS, $trn) and Prime AUM (Green, LHS, $trn).

FHLBNY Advance Rates Observations

Front-End Rates

• As of Thursday midday, short-end rates were mixed vs. the week prior. Overnight was 6 bps higher from last week, owing to the usual month-end dynamics of UST settlements and dealer balance sheet management. The 1-week-to-3-month sector fell by 1bp. The 4-to-6-month zone rose by 2 to 4 bps, as the market pared back its pricing of potential Fed rate cuts. While robust Money Market Fund (MMF) AUM levels and negative net T-bill supply in the past few months had underpinned demand for short-end paper and benefited our funding spreads, the backdrop has shifted now that the debt ceiling was raised via the budget bill signed on July 4th. Net T-bill supply has now turned decidedly positive, as Treasury rebuilds its General Account. This change should serve to reduce liquidity in the financial system, and it has also led to some spread widening in our paper. MMFs, however, are expected to absorb sizable portions of the T-bill supply, as they switch some of their substantial AUM from repo to T-bills and thereby contain any further severe impacts for bills and/or our paper.
• The market will monitor the week’s mostly second-tier data. Pressure on Overnight rates should subside as the week progresses.

Term Rates

• The longer-term curve, as of late Thursday and generally mirroring the moves in USTs and swaps, was flatter from the week prior. The 2-year rose by ~3 bps, the 5-year declined a bp, and the 10-year fell by ~5 bps. Kindly refer to the previous section for color on market dynamics and changes.
• On the UST term supply front, the upcoming week serves a hefty slate of 3/10/30-year auctions. This oncoming supply may cause rates to back up a bit on Friday, 8/1, afternoon, particularly if yields decline earlier in the day on a weak jobs report, as dealers prepare to digest the bonds. Note that UST auctions usually occur at 1pm and can occasionally spur volatility around that time. Please contact the Member Services Desk for further information on market dynamics, rate levels, or products.