Bond Market Update

Pressured by Tariff Pause

• U.S. Treasuries started the week on a sharply lower note amid a jump in risk sentiment after the weekend meeting in Switzerland between officials from the U.S. and China resulted in an agreement to temporarily reduce tariffs. Tariffs on both sides will be reduced by 115 basis points for 90 days, giving the market hope that a worst-case scenario will be avoided. Treasuries plunged at the cash open, followed by a short-lived mid-morning bounce that was paced by the long bond. Intraday action saw a rise past the day's opening levels, but the market found renewed pressure in the late morning, returning to lows as the day went on while equities logged strong gains. Crude oil climbed toward its 50-day moving average (64.45) before narrowing its gain while the U.S. Dollar Index jumped 1.6% to 101.90, returning to its 50-day moving average (101.94). The market was not moved by any data today but tomorrow will feature the release of April CPI (Briefing.com consensus 0.3%; prior -0.1%) and Core CPI (Briefing.com consensus 0.3%; prior 0.1%) at 8:30 ET.
• Yield Check:
  • 2-yr: +12 bps to 4.00%
  • 3-yr: +12 bps to 3.99%
  • 5-yr: +11 bps to 4.10%
  • 10-yr: +8 bps to 4.46%
  • 30-yr: +6 bps to 4.89%

• News:
  • Chicago Fed President Goolsbee (FOMC voter) continues to expect lower growth and higher inflation, according to The New York Times.
  • 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.
  • 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%.
  • 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%).
• Today's Data:
  • The Treasury Budget for April showed a surplus of $258.4 billion compared to a surplus of $209.5 billion in the same period a year ago. The April surplus resulted from receipts ($850.2 bln) exceeding outlays ($591.8 billion). The Treasury Budget data are not seasonally adjusted, so the April surplus cannot be compared to the March deficit of $160.5 billion.
    • The key takeaway from the report is that there was some relief on the deficit side of things with tax receipts swelling in April; however, the budget deficit at this point in the fiscal year is still 22% greater than in fiscal 2024.
• Commodities:
  • WTI crude: +1.4% to $61.92/bbl
  • Gold: -3.5% to $3228.90/ozt
  • Copper: -0.9% to $4.61/lb
• Currencies:
  • EUR/USD: -1.4% to 1.1085
  • GBP/USD: -0.9% to 1.3178
  • USD/CNH: -0.5% to 7.1990
  • USD/JPY: +2.1% to 148.40
• The Day Ahead:
  • 6:00 ET: April NFIB Small Business Optimism Index (prior 97.4)
  • 8:30 ET: April CPI (Briefing.com consensus 0.3%; prior -0.1%) and Core CPI (Briefing.com consensus 0.3%; prior 0.1%)