Bond Market Update

Data Recon

• The Producer Price Index for final demand decreased 0.5% month-over month in April (Briefing.com consensus 0.3%). That was the good news. The bad news is that the prior month was revised up to unchanged from a 0.4% decline. The Producer Price Index for final demand, less foods and energy, decreased 0.4% month-over-month (Briefing.com consensus 0.3%), again good news, but the bad news (again) is that the prior month was revised up to 0.4% from -0.1%. On a year-over-year basis, the index for final demand was up 2.4%, versus an upwardly revised 3.4% (from 2.7%) in March, while the index for final demand, less foods and energy, was up 3.1%, versus an upwardly revised 4.0% (from 3.3%) in March.
  • The key takeaway from the report is that the big drop in the index for final demand was driven by a 0.7% decline in the index for final demand services (the largest decline since December 2009). Over 40% of that 0.7% decline was driven by margins for machinery and vehicle wholesaling, which dropped 6.1%. That suggests wholesalers were likely absorbing some tariff impacts, which is good for the end customer but not necessarily for earnings.
• Total retail sales increased 0.1% month-over-month in April (Briefing.com consensus 0.2%) following an upwardly revised 1.7% (from 1.4%) in March. Excluding autos, retail sales were also up 0.1% month-over-month (Briefing.com consensus 0.5%) following an upwardly revised 0.8% increase (from 0.5%) in March.
  • The key takeaway from the report is that the pace of spending on goods decelerated in April, speaking to the tariff frontrunning evident in the strong sales for March and reflecting the consumer's cautious mindset following "Liberation Day" and the stock market's volatility.
• Initial jobless claims for the week ending May 10 were unchanged at 229,000 (Briefing.com consensus 226,000), while continuing jobless claims for the week ending May 3 increased by 9,000 to 1.881 million.
  • The key takeaway from the report is that the initial jobless claims filings -- a leading indicator -- still reflect an otherwise solid labor market that will remain supportive of consumer spending, albeit perhaps at a slower pace in the face of higher prices.
• The May Empire State Manufacturing Index checked in at -9.2 (Briefing.com consensus 1.0) versus -8.1 in April. The May Philadelphia Fed Index checked in at -4.0 (Briefing.com consensus -6.0) versus -26.4 in March.
  • The key takeaway from these regional manufacturing reports is that the breakeven point between contraction and expansion is 0.0, so each reflects a contraction in activity in May versus April, somewhat faster for the Empire State report and somewhat slower for the Philadelphia Fed Index.
• Yield Check:
  • 2-yr: -6 bps to 3.99%
  • 3-yr: -6 bps to 3.99%
  • 5-yr: -5 bps to 4.12%
  • 10-yr: -2 bps to 4.51%
  • 30-yr: UNCH at 4.96%