Bond Market Update

Pressured by Tariff Reduction

• U.S. Treasuries are on track for a sharply lower start with shorter tenors set to pace the early selling. Treasury futures started the overnight session in the red, continuing their retreat as the night went on. The losses followed a weekend meeting between representatives from the U.S. and China, which produced an agreement to reduce tariffs on both sides by 115 basis points for 90 days. Treasury Secretary Bessent labeled the talks "productive," while Chinese Vice Premier He called them an "important first step." The overnight data flow was on the light side, though China reported another deflationary CPI reading on a year-over-year basis (-0.1%), reflecting weak consumption in April. Crude oil is rising to a two-week high while the U.S. Dollar Index is up 1.4% at 101.71.
• Yield Check:
  • 2-yr: +10 bps to 3.98%
  • 3-yr: +10 bps to 3.97%
  • 5-yr: +9 bps to 4.08%
  • 10-yr: +6 bps to 4.44%
  • 30-yr: +4 bps to 4.87%

• News:
  • India and Pakistan agreed to a ceasefire after a recent escalation of tension along the Kashmir line.
  • South Korea's exports through the first ten days of May were down 23.8% yr/yr, but chip exports grew 14.0%.
  • Bank of England policymaker Lombardelli said that it is sensible to continue cutting rates at a gradual pace.
  • European Central Bank policymaker Schnabel said that keeping rates near current levels ensures policy that is neither holding back growth nor stimulating it.
  • China's April CPI was up 0.1% m/m (last -0.4%) but down 0.1% yr/yr, as expected (last -0.1%). April PPI was down 2.7% yr/yr, as expected (last -2.5%).
  • Japan's April Economy Watcher Current Index fell to 42.6 from 45.1 (expected 44.7). March Current Account surplus reached JPY2.72 trln (expected JPY2.42 trln; last JPY2.91 trln). April Bank Lending was up 2.4% yr/yr (expected 2.8%; last 2.8%).
• Commodities:
  • WTI Crude: +4.2% to $63.54/bbl
  • Gold: -3.6% to $3223.40/ozt
  • Copper: +0.6% to $4.679/lb
• Currencies:
  • EUR/USD: -1.2% to 1.1108
  • GBP/USD: -0.9% to 1.3176
  • USD/CNH: -0.5% to 7.1990
  • USD/JPY: +1.8% to 147.94
• Data out Today:
  • 14:00 ET: April Treasury Budget (prior -$160.5 bln)