Bond Market Update

Brief Tariff Reprieve Fuels Monday Rally

• U.S. Treasuries started the week on a strong note, sending yields on the 5-yr note and shorter tenors back to their opening levels from Thursday. The market was off to a higher start after an overnight advance in the futures market, which took place alongside gains in global equities after President Trump exempted items like smartphones, semiconductors, and some other electronics from reciprocal tariffs. The initial excitement was reined in somewhat after Commerce Secretary Lutnick said that the exemptions will be temporary while President Trump added that he will soon announce a tariff rate for semiconductors. Treasuries continued adding to their starting gains in morning trade with the long bond showing early strength before ceding the lead to the belly of the curve. Late morning trade saw the release of the latest Survey of Consumer Expectations from the New York Fed. The survey showed that year-ahead inflation expectations increased by 50 basis points to 3.6% while expectations at the three-year horizon remained at 3.0% and five-year expectations dipped to 2.9% from 3.0%. That made for a notable contrast with Friday's release of the University of Michigan's Consumer Sentiment survey, which showed a sharp acceleration in one-year (to 6.7% from 5.0%) and five-year (to 4.4% from 4.1%) inflation expectations. The long bond returned to its morning high during the final hour of trade while 10s and shorter tenors spent the afternoon in a steady rise to fresh highs. Crude oil gave back an overnight gain while the U.S. Dollar Index fell 0.4% to 99.71, sliding past its 2024 low (100.16) to a level not seen since July 2023.
• Yield Check:
  • 2-yr: -12 bps to 3.83%
  • 3-yr: -14 bps to 3.86%
  • 5-yr: -16 bps to 4.00%
  • 10-yr: -13 bps to 4.36%
  • 30-yr: -8 bps to 4.80%

• News:
  • Treasury Secretary Bessent will prioritize trade negotiations with Australia, South Korea, India, Japan, and the U.K., according to The Wall Street Journal. 
  • Fed Governor (FOMC voter) Waller discussed two tariff scenarios with both resulting in rate cuts.
  • Goldman Sachs (GS) beat Q1 expectations by a healthy margin.
  • Italy's Prime Minister Meloni is scheduled to meet with President Trump in Washington on Wednesday.
  • Standard & Poor's upgraded Italy's debt rating to BBB+ from BBB due to improved economic buffers and a falling deficit.
  • Shanghai Securities News speculated that China will announce additional monetary easing measures soon.
  • China's March New Loans reached CNY3.64 trln (expected CNY3.02 trln; last CNY1.01 trln). March Outstanding Loans grew 7.4% yr/yr (expected 7.3%; last 7.3%) and March total social financing reached CNY5.89 trln (expected CNY4.80 trln; last CNY2.23 trln). March trade surplus reached $102.64 bln (expected $74.30 bln; last $170.52 bln) as imports fell 4.3% yr/yr (expected -2.0%; last -8.4%) and exports rose 12.4% yr/yr (expected 4.4%; last 2.3%).
  • Japan's February Industrial Production was up 2.3% m/m (expected 2.5%; last -1.1%) and Capacity Utilization was down 1.1% m/m (last 4.5%).
  • Singapore's Q1 GDP contracted 0.8% qtr/qtr (expected -0.4%; last 2.0%) but was up 3.8% yr/yr (expected 4.2%; last 5.0%).
  • New Zealand's March Electronic Card Retail Sales were down 0.8% m/m (last 0.3%), falling 1.6% yr/yr (last -4.2%).
  • Swiss March PPI was up 0.1% m/m (expected 0.2%; last 0.3%) but down 0.1% yr/yr (last -0.1%).
• Commodities:
  • WTI crude: +0.1% to $61.59/bbl
  • Gold: -0.6% to $3227.30/ozt
  • Copper: +2.9% to $4.64/lb
• Currencies:
  • EUR/USD: UNCH at 1.1354
  • GBP/USD: +0.9% to 1.3197
  • USD/CNH: +0.4% to 7.3068
  • USD/JPY: -0.4% to 142.93
• The Day Ahead:
  • 8:30 ET: April Empire State Manufacturing (Briefing.com consensus -14.8; prior -20.0), March Export Prices (prior 0.1%), Export Prices ex-agriculture (prior 0.1%), Import Prices (prior 0.4%), and Import Prices ex-oil (prior 0.3%)