Bond Market Update

Pulling Back From April Rally

• U.S. Treasuries started May on a lower note after backpedaling from their opening highs. The trading day started with gains after a night that saw Labor Day-related closures in many major equity markets. The market received the latest policy statement from the Bank of Japan, but the central bank did not announce any changes to its stance. Treasuries marked session highs after the latest weekly jobless claims report (241,000; Briefing.com consensus 225,000) showed a larger-than-expected increase, but the market began slipping from highs as the morning went on. The pullback accelerated after the ISM Manufacturing report for April (48.7%; Briefing.com consensus 47.9%) showed a contraction, but not as deep as the market had expected. The post-data retreat pressured longer tenors into negative territory where they were joined by shorter tenors as the day went on. Crude oil approached its April low (55.12) before bouncing while the U.S. Dollar Index rose 0.8% to 100.22.
• Yield Check:
  • 2-yr: +8 bps to 3.70%
  • 3-yr: +7 bps to 3.68%
  • 5-yr: +6 bps to 3.81%
  • 10-yr: +5 bps to 4.23%
  • 30-yr: +6 bps to 4.74%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was lowered to 1.1% from 2.4% in the previous estimate.
  • The Bank of Japan made no policy changes but lowered its domestic growth forecast for fiscal 2026 to 0.5% from 1.1% and lowered its outlook for fiscal 2027 to 0.7% from 1.0%.
  • Chinese press reported that the U.S. has reached out to Chinese officials for talks.
  • Thailand's central bank lowered its policy rate by 25 basis points to 1.75%, as expected.
  • EU officials are reportedly preparing to present their trade proposal to the U.S. next week.
  • Japan's April Manufacturing PMI hit 48.7 (expected 48.5; last 48.4) and April Household Confidence hit 31.2 (expected 33.9; last 34.1).
  • South Korea's April trade surplus reached $4.88 bln (expected surplus of $4.40 bln; last surplus of $4.92 bln) as imports fell 2.7% yr/yr (expected -6.9%; last 2.3%) and exports rose 3.7% yr/yr (expected -1.6%; last 3.0%).
  • Australia's March trade surplus reached AUD6.90 bln (expected surplus of AUD3.23 bln; last surplus of AUD2.852 bln) as imports fell 2.2% m/m (last 1.8%) and exports rose 7.6% m/m (last -4.2%). Q1 Import Price Index was up 3.3% qtr/qtr (expected 0.3%; last 0.2%) and Export Price Index was up 2.1% (last 3.6%). April Commodity Prices fell 6.1% yr/yr (last -7.2%).
  • U.K.'s April Manufacturing PMI hit 45.4 (expected 44.0; last 44.9). March Mortgage Approvals reached 64,310 (expected 64,000; last 65,090) and Mortgage Lending reached GBP12.96 bln (expected GBP3.80 bln; last GBP3.30 bln).
  • Swiss March Retail Sales rose 2.2% yr/yr (expected 1.9%; last 1.2%).
• Today's Data:
  • Initial jobless claims for the week ending April 26 increased by 18,000 to 241,000 (Briefing.com consensus 225,000), driven by a surprisingly large (and unexplained) jump in claims in New York, while continuing jobless claims for the week ending April 19 increased by 83,000 to 1.916 million, which is the highest level since November 13, 2021.
    • The key takeaway from the report is that the relatively large jump in both initial and continuing jobless claims will stoke concerns about a softening labor market, which in turn might elevate the market's thinking that the Fed can be convinced that it needs to be less restrictive with its policy stance.
  • The April ISM Manufacturing Index slipped to 48.7% in April (Briefing.com consensus 47.9%) from 49.0% in March. The dividing line between expansion and contraction is 50.0%, so the April reading suggests that activity in the manufacturing sector contracted at a slightly faster pace than the prior month.
    • The key takeaway from the report is that demand weakened, evidenced by the New Orders Index remaining below 50.0% for the third straight month, with tariff uncertainty contributing to the relatively weak activity.
  • Total construction spending decreased 0.5% month-over-month in March (Briefing.com consensus 0.3%) after increasing a downwardly revised 0.6% increase (from 0.7%) in February. Total private construction was down 0.6% month-over-month, while total public construction was down 0.2% month-over-month. On a year-over-year basis, total construction spending was up 2.8%.
    • The key takeaway from the report is that spending weakened in March for both private and public construction.
  • The S&P Global U.S. Manufacturing PMI hit 50.2 in the final April reading, down from the preliminary reading of 50.7 and unchanged from the final March reading.
  • Weekly natural gas inventories increased by 107 bcf after increasing by 88 bcf a week ago.
• Commodities:
  • WTI crude: +2.1% to $59.32/bbl
  • Gold: -2.9% to $3222.10/ozt
  • Copper: +0.2% to $4.62/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1289
  • GBP/USD: -0.3% to 1.3280
  • USD/CNH: +0.2% to 7.2770
  • USD/JPY: +1.9% to 145.65
• The Day Ahead:
  • 8:30 ET: April Nonfarm Payrolls (Briefing.com consensus 130,000; prior 228,000), Nonfarm Private Payrolls (Briefing.com consensus 125,000; prior 209,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.2%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2)
  • 10:00 ET: March Factory Orders (Briefing.com consensus 4.1%; prior 0.6%)