Bond Market Update

Sitting Tight

• U.S. Treasuries saw some excitement in the overnight trade as French election uncertainty drove some safe-haven interest and overshadowed weak new loan data out of China and a Bank of Japan decision to leave its uncollateralized overnight call rate unchanged at about 0.0% to 0.1% and to reduce its bond purchases over the next one or two years or so without giving specific details. Those details will reportedly come at the next policy meeting in July. Then the market settled in, sticking to a tight trading range as it digested a weaker-than-expected preliminary reading for the June University of Michigan Index of Consumer Sentiment. The long end outperformed shorter maturities today at a time when the dollar outpaced most major currencies.
• Yield Check:
  • 2-yr: unch at 4.69% (-20 bps for the week)
  • 3-yr: unch at 4.43% (-22 bps for the week)
  • 5-yr: -1 bp to 4.23% (-23 bps for the week)
  • 10-yr: -2 bps to 4.22% (-22 bps for the week)
  • 30-yr: -5 bps to 4.35% (-20 bps for the week)

• News:
  • France's left-wing parties are aligning as a "Popular Front" to challenge Marine Le Pen's far-right National Rally Party. France's finance minister warns that a left-wing win could mean an EU exit.
  • French President Emmanuel Macron's party could face wipeout in snap elections after left formed unity pact, according to FT
  • European bank stocks getting clipped on France's election uncertainty
  • The Bank of Japan left its uncollateralized overnight call rate unchanged at around 0.0% to 0.1%, as expected, and voted 8-1 that it would reduce bond purchases over the next one to two years or so; will provide more details at next policy meeting in July, but Governor Ueda suggests reduction would likely be sizable, according to Nikkei
  • Former President Trump told CEOs yesterday he will ask Congress to lower corporate tax rate to 20% if he wins the presidency, according to Bloomberg
  • G7 members agree to increase enforcement of Russian oil price cap, according to Bloomberg
  • India's May wholesale inflation hits 15-month high of 2.61%
  • Taiwan's central bank also left its key interest rate unchanged at 2.0%, and raised the lenders' reserve requirement ratio by 25 basis points
  • New York Community discloses that it assumed substantially all of the deposits and certain identified liabilities and acquired certain assets and lines of business of Signature Bridge Bank (SBNY) from FDIC
  • China's May New Loans CNY950.0B (expected CNY2,250.0B; last CNY730.0B)
• Today's Data:
  • May import prices declined 0.4%, nonfuel import prices declined 0.3%, export prices declined 0.6%, and non-agricultural export prices declined 0.8%
  • The preliminary Index of Consumer Sentiment for June checked in at 65.6 (Briefing.com consensus 73.0) versus the final reading of 69.1 for May. In the same period a year ago, the index stood at 64.2.
    • The key takeaway from the report is that consumers' assessment of their personal finances slipped due to high prices and weakening incomes. That could presage some weakening spending activity.
• Commodities:
  • WTI crude: -0.6% to $78.08/bbl
  • Gold: +1.4% to $2349.60/ozt
  • Copper: +0.2% to $4.50/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0700
  • GBP/USD: -0.6% to 1.2681
  • USD/CNH: flat at 7.2728
  • USD/JPY: +0.2% to 157.29
• The Week Ahead:
  • Monday: June Empire State Manufacturing Index (prior -15.6)
  • Tuesday: May Retail Sales (prior 0.0%) and Retail Sales, Ex-Auto (prior 0.2%); May Industrial Production (prior 0.0%) and Capacity Utilization (prior 78.4%); April Business Inventories (-0.1%); April Net Long-Term TIC Flows (prior $100.5B); $13 bln 20-yr bond auction
  • Wednesday: MBA Weekly Mortgage Applications Index (prior 15.6%); June NAHB Housing Market Index (prior 45)
  • Thursday: Weekly initial Jobless Claims (prior 242K) and Continuing Jobless Claims (prior 1820K); May Housing Starts (prior 1360K) and Building Permits (prior 1440K); Q1 Current Account Balance (prior -$194.8B); June Philadelphia Fed Manufacturing Index (prior 4.5); EIA Crude Oil Inventories (prior +3.73M)
  • Friday: May Existing Home Sales (prior 4.14M); Preliminary June S&P Global US Manufacturing PMI (prior 51.3) and S&P Global US Services PMI (prior 54.8); May Leading indicators (prior -0.6%); EIA Natural Gas Inventories (prior +75 bcf)