Bond Market Update

Yields Return to 50-Day Moving Averages

• U.S. Treasuries climbed on Thursday, sending yields on 3s, 5s, and 10s back below their respective 50-day moving averages while yields on other tenors settled just above 50-day moving averages of their own. Treasuries recorded nearly all of their gains at the open after a night that saw weakness in global equities after President Trump signaled a tougher approach to trade, saying that letters with trade term offers will be sent to different countries. These offers will not leave much room for negotiation since he added that they will come with a "take it or leave it" caveat. In addition, there was some focus on the growing tensions in the Middle East after yesterday's report that U.S. Embassy staff in Baghdad received authorization to leave their post. President Trump confirmed the report last evening, and today, ABC News reported that Israel is considering military action against Iran with logistical support from the U.S. Treasuries added to their initial gains after this morning's batch of data included a cooler-than-expected PPI report for May (0.1%; Briefing.com consensus 0.2%) and a jobless claims report that showed a big jump in continuing claims to a level not seen since late 2021. The post-data uptick was followed by some backtracking, though the long bond returned to its morning high after the U.S. Treasury capped this week's note and bond auction slate with a solid 30-yr bond reopening. Meanwhile, shorter tenors finished near their opening levels. Crude oil gave back some of its big gain from yesterday while the U.S. Dollar Index fell 0.7% to 97.93.
• Yield Check:
  • 2-yr: -3 bps to 3.91%
  • 3-yr: -5 bps to 3.86%
  • 5-yr: -5 bps to 3.96%
  • 10-yr: -6 bps to 4.36%
  • 30-yr: -7 bps to 4.84%

• News:
  • Japan's Prime Minister Ishiba refuted the idea that his government is looking into a cash payout proposal, according to Nikkei.
  • The Reserve Bank of India plans to use its cash reserve ratio more frequently as a monetary policy tool, according to Reuters.
  • Bank of Korea Governor Rhee called for more fiscal stimulus to support the economy, according to Yonhap.
  • Latest figures from Lipper showed robust inflows into European funds in May.
  • Japan's Q2 BSI Large Manufacturing Conditions fell to -4.8 from -2.4 (expected 0.8).
  • Hong Kong's Q1 PPI was up 4.8% (last 4.1%); Q1 Industrial Production rose 0.7% yr/yr (last 0.9%).
  • UK's April GDP contracted 0.3% m/m (expected -0.1%; last 0.2%), but was up 0.9% yr/yr (last 1.1%).
  • Italy's Quarterly Unemployment Rate remained at 6.1% (expected 6.0%).
• Today's Data:
  • The Producer Price Index for final demand increased 0.1% month-over-month in May (Briefing.com consensus 0.2%) after decreasing a revised 0.2% (from -0.5%) in April. The Producer Price Index for final demand, less foods and energy, also increased 0.1% month-over-month (Briefing.com consensus 0.3%), while the April reading was revised up to -0.2% from -0.4%. On a year-over-year basis, the index for final demand was up 2.6%, versus an upwardly revised 2.5% in April (from 2.4%), while the index for final demand, less foods and energy, was up 3.0%, versus an upwardly revised 3.2% (from 3.1%) in April.
    • The key takeaway from the report is that the positive impact of a cooler-than-expected reading is largely being offset by upward revisions to readings from April. That said, the year-over-year Core PPI rate decelerated to 3.0% from 3.2%, which is a positive development.
  • Initial jobless claims for the week ending June 7 hit 248,000 (Briefing.com consensus 250,000), unchanged from the prior week's upwardly revised level (from 247,000). Continuing jobless claims for the week ending May 31 increased by 54,000 to 1.956 million from last week's downwardly revised 1.902 million (from 1.904 million).
    • The key takeaway from the report is that continuing claims reached a level not seen since late 2021, which will invite some questions about the strength of the labor market since laid-off workers are having an increasingly difficult time finding new jobs quickly.
  • Weekly natural gas inventories increased by 109 bcf after increasing by 122 bcf a week ago.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.844% (4.549%).
    • Bid-to-cover: 2.43 (2.41).
    • Indirect bid: 62.5% (65.5%).
    • Direct bid: 23.4% (20.1%).
• Commodities:
  • WTI crude: -0.3% to $68.04/bbl
  • Gold: +1.7% to $3402.20/ozt
  • Copper: +0.4% to $4.84/lb
• Currencies:
  • EUR/USD: +0.8% to 1.1576
  • GBP/USD: +0.4% to 1.3595
  • USD/CNH: -0.3% to 7.1730
  • USD/JPY: -0.7% to 143.57
• The Day Ahead:
  • 10:00 ET: Preliminary June University of Michigan Consumer Sentiment (Briefing.com consensus 53.0; prior 52.2)

Auction Reaction

• U.S. Treasuries have seen some recent buying with the long bond returning to its opening high while shorter tenors are a bit below their best levels of the session, though they too have advanced in recent trade. The uptick followed the completion of today's $22 bln 30-yr bond reopening, which met solid demand. The sale drew a high yield of 4.844%, which stopped through the when-issued yield by an impressive 1.5 basis points while the bid-to-cover ratio (2.43x) was above average (2.41x). Indirect takedown (62.5%), however, was a bit shy of average (65.5%). Altogether, this makes for an encouraging finish to this week's note and bond auction slate that started with a sloppy 3-yr note sale on Tuesday.
• Yield Check:
  • 2-yr: -4 bps to 3.90%
  • 3-yr: -5 bps to 3.86%
  • 5-yr: -5 bps to 3.96%
  • 10-yr: -6 bps to 4.35%
  • 30-yr: -7 bps to 4.84%

Treasury Auction Results

• $22 bln 30-year Treasury bond reopening:
  • Auction results:
    • High yield: 4.844% (When-Issued: 4.859%)
    • Bid-to-cover: 2.43
    • Indirect bid: 65.2%
    • Direct bid: 23.4%
  • Average results of previous 12 auctions:
    • High yield: 4.549%
    • Bid-to-cover: 2.41
    • Indirect bid: 65.5%
    • Direct bid: 20.1%

Treasury Auction Preview

• $22 bln 30-year Treasury bond reopening (results at 13:00 ET)
  • Prior auction results:
    • High yield: 4.819%
    • Bid-to-cover: 2.31
    • Indirect bid: 58.9%
    • Direct bid: 27.2%
  • Average results of previous 12 auctions:
    • High yield: 4.549%
    • Bid-to-cover: 2.41
    • Indirect bid: 65.5%
    • Direct bid: 20.1%

Opening Gains Trimmed

• U.S. Treasuries trade a bit below their opening levels after finding some early resistance. The market built on its higher start in reaction to today's economic data, which included cooler-than-expected PPI for May (0.1%; Briefing.com consensus 0.2%) and a jobless claims report that showed a big jump in continuing claims (to 1.956 million from 1.902 million) to a level not seen since 2021. The post-data advance sent the 30-yr yield back to its 50-day moving average (4.840%), where the market found resistance. The 10-yr yield, meanwhile, briefly slipped below the 50-day moving average of its own (4.369%) before rising back above that mark as Treasuries reversed from highs. Equities are off to muted start in the S&P 500 (+0.1%) while small caps lag in early trade with the Russell 2000 falling 0.4%.
• Yield Check:
  • 2-yr: -3 bps to 3.91%
  • 3-yr: -4 bps to 3.87%
  • 5-yr: -4 bps to 3.97%
  • 10-yr: -3 bps to 4.38%
  • 30-yr: -3 bps to 4.87%