Bond Market Update

Rebound Meets Resistance

• U.S. Treasuries of most tenors continued their rebound from Thursday, capping a week that saw the 30-yr yield approach its high from mid-January (5.005%). The trading day started with solid gains across the curve after a night that saw a sizable data slate, including a contractionary Q1 GDP reading from Japan (-0.2% qtr/qtr; expected -0.1%) and a big March trade surplus from the eurozone (EUR36.8 bln; expected EUR17.5 bln) as exporters rushed shipments ahead of tariffs. Treasuries attempted to extend their starting gains after the release of a slightly weaker-than-expected Housing Starts report for April (1.361 mln; Briefing.com consensus 1.383 mln) but failed to gain traction. The market slipped to fresh lows after the next economic report—preliminary May University of Michigan Consumer Sentiment (50.8; Briefing.com consensus 55.0)—also missed expectations. The selling continued until the 2-yr note turned negative while 5s and longer tenors found support before turning red and held onto their slim gains into the close. Crude oil climbed back toward $62/bbl, gaining just under $1/bbl for the week, while the U.S. Dollar Index rose 0.2% to 101.07.
• Yield Check:
  • 2-yr: +1 bp to 3.98% (+10 bps this week)
  • 3-yr: UNCH at 3.96% (+9 bps this week)
  • 5-yr: -1 bp to 4.06% (+7 bps this week)
  • 10-yr: -1 bp to 4.44% (+6 bps this week)
  • 30-yr: -2 bps to 4.90% (+7 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was lowered to 2.4% from 2.5% in the previous estimate.
  • The House Budget Committee failed to advance the large reconciliation bill due to opposition from fiscal conservatives who are seeking bigger spending cuts.
  • Trade talks between the U.S. and the EU have intensified, according to FT.
  • The Trump administration is reportedly considering adding two Chinese chipmakers to the China entity list.
  • The Federal Reserve plans to reduce its workforce by about 10%, according to Bloomberg.
  • Bank of Japan policymaker Nakamura warned that additional rate hikes from the BoJ could dampen consumption and investment given the ongoing tariff uncertainty.
  • British Prime Minister Starmer said that he is confident in reaching a trade deal with the EU ahead of Monday meeting with EU leaders.
  • The European Parliament's trade committee backed increased EU tariffs on certain agricultural imports from Russia and Belarus.
  • Japan's Q1 GDP contracted 0.2% qtr/qtr (expected -0.1%; last +0.6%), falling 0.7% yr/yr (expected -0.2%; last +2.4%). Q1 GDP Private Consumption was unchanged qtr/qtr (expected +0.1%; last +0.1%). Q1 GDP Capital Expenditure was up 1.4% qtr/qtr (expected +0.8%; last +0.8%). Q1 GDP External Demand was down 0.8% qtr/qtr (expected -0.6%; last +0.7%). Q1 GDP Price Index was up 3.2% yr/yr (expected +3.2%; last +2.9%). March Industrial Production rose 0.2% m/m (expected -1.1%; last 2.3%) and Capacity Utilization was down 2.4% m/m (last -1.1%).
  • South Korea's April Export Price Index rose 0.7% yr/yr (last +6.3%) and Import Price Index fell 2.3% yr/yr (last +3.4%).
  • Hong Kong's Q1 GDP expanded 1.9% qtr/qtr (expected 2.0%; last 0.8%), growing 3.1% yr/yr, as expected (last 2.4%).
  • Singapore's April trade surplus reached SGD14.20 bln (last surplus of SGD5.35 bln) as non-oil exports rose 10.4% m/m (last -7.5%), increasing 12.4% yr/yr (expected 4.0%; last 5.4%).
  • New Zealand's April Business NZ PMI hit 53.9 (last 53.2). Q1 Inflation Expectations increased to 2.3% from 2.1%. April RBNZ Offshore Holdings fell to 58.80% from 59.20%.
  • Eurozone's March trade surplus reached EUR36.8 bln (expected surplus of EUR17.5 bln; last surplus of EUR24.8 bln).
  • France's Q1 Unemployment Rate rose to 7.4% from 7.3%, as expected.
  • Italy's April CPI was up 0.1% m/m (expected 0.2%; last 0.3%), rising 1.9% yr/yr (expected 2.0%; last 1.9%). March trade surplus reached EUR3.657 bln (expected surplus of EUR5.150 bln; last surplus of EUR4.444 bln).
  • Swiss Q1 Industrial Production was up 8.5% yr/yr (last 2.1%).
• Today's Data:
  • Total housing starts increased 1.6% month-over-month in April to a seasonally adjusted annual rate of 1.361 million units (Briefing.com consensus 1.383 million), yet single-unit starts dropped 2.1%. Total building permits were down 4.7% month-over-month in April to a seasonally adjusted annual rate of 1.412 million (Briefing.com consensus 1.450 million), yet single-unit permits were down 5.1% and driven by declines in all regions.
    • The key takeaway from the report is the weakness in single-unit permits across all regions, as it speaks to cautious-minded consumers and builders dealing with higher prices, higher mortgage rates, and higher building costs.
  • The preliminary University of Michigan Index of Consumer Sentiment for May slipped to 50.8 (Briefing.com consensus 55.0) from the final reading of 52.2 for April. In the same period a year ago, the index stood at 69.1.
    • The key takeaway from the report is that it continues to reflect some deteriorating views among consumers about their personal finances and some alarming views about their inflation expectations. Note, this survey was conducted between April 22 and May 13, closing two days after the U.S.-China tariff de-escalation news, so it doesn't capture the full consideration of that pleasing news.
  • Import prices increased 0.1% in April after decreasing a revised 0.4% (from -0.1%) in March. Excluding oil, import prices increased 0.4% in April after decreasing a revised 0.1% (from +0.1%) in March. Export prices increased 0.1% in April after increasing a revised 0.1% (from 0.0%) in March. Excluding agriculture, export prices increased 0.1% after increasing a revised 0.1% (from -0.1%) in March.
• Commodities:
  • WTI crude: +0.5% to $61.97/bbl
  • Gold: -1.1% to $3186.80/ozt
  • Copper: -2.4% to $4.58/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1152
  • GBP/USD: -0.2% to 1.3280
  • USD/CNH: +0.1% to 7.2109
  • USD/JPY: +0.2% to 145.87
• The Week Ahead:
  • Monday: April Leading Indicators (prior -0.7%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 1.1%) at 7:00 ET; weekly crude oil inventories (prior +3.45 mln) at 10:30 ET; and $16 bln 20-yr Treasury bond auction results at 13:00 ET
  • Thursday: Weekly Initial Claims (prior 229,000) and Continuing Claims (prior 1.881 mln) at 8:30 ET; April Existing Home Sales (prior 4.02 mln) at 10:00 ET; and weekly natural gas inventories (prior +110 bcf) at 10:30 ET
  • Friday: April New Home Sales (prior 724,000) at 10:00 ET