Bond Market Update

Finding Support (Again)

• U.S. Treasuries saw most of their movement in the overnight session and shortly after the start of the cash session. The 10-yr note yield elevated to 4.52%, and the 30-yr bond yield moved to 5.00%, but just like yesterday, buyers came in to provide support and sent both back below those closely-watched levels. The rest of the session was tightly traded and favored a slight steepening, with the back end of the curve underperforming the front end. That transpired amid reports that the SALT Caucus, which wants a higher deduction limit, was not swayed by President Trump's exhortation on Capitol Hill to "let it go." A higher deduction limit could end up adding more to the deficit if it is not offset with spending cuts elsewhere. In related news, the president also reportedly told House GOP members not to mess with Medicaid. The U.S. Dollar Index was down 0.3% to 100.11.
• Yield Check:
  • 2-yr: -1 bp to 3.97%
  • 3-yr: -2 bps to 3.94%
  • 5-yr: -2 bps to 4.06%
  • 10-yr: +1 bp to 4.48%
  • 30-yr: +2 bps to 4.96%

• News:
  • Punchbowl News reporter Jake Sherman says President Trump "has told House Republicans to lay off Medicaid. Before he went into the room, he told reporters that he is not for Medicaid cuts but rather getting rid of waste, fraud, and abuse. HFCers (House Freedom Caucus) are pushing a restructuring of the funding mechanism of Medicaid"
  • House Republican leadership has not yet reached agreement on the state and local tax deduction in the reconciliation bill, according to Politico
  • There are no signs that President Trump alleviated concerns of certain Republicans who are currently against large reconciliation bill, according to NY Times
  • Senate votes 66-32 to advance stablecoin legislation to a full Senate vote
  • The People's Bank of China reduced its one-year (3.00%) and five-year (3.50%) loan prime rates by ten basis points each, which the market had expected
  • The Reserve Bank of Australia lowered its cash rate by 25 basis points to 3.85%, as expected
  • Germany's producer prices saw a larger-than-expected drop in April, contributing to expectations for more easing from the European Central Bank
  • Japan had a weak 20-yr bond auction, which helped send yields on longer tenors to fresh multi-year highs
  • British Prime Minister Starmer touted a freshly-signed trade deal with the EU
  • Bank of England Chief Economist Pill said that cutting rates by 25 basis points per quarter is too rapid due to a stubborn inflation outlook
  • India is reportedly discussing a three-tranche structure for a trade deal with the U.S.
  • Germany's April PPI -0.6% m/m (expected -0.3%; last -0.7%); -0.9% yr/yr (expected -0.6%; last -0.2%)
• Today's Data:
  • There was no U.S. economic data of note
• Commodities:
  • WTI crude: -0.1% to $62.05/bbl
  • Gold: +1.6% to $3284.80/ozt
  • Copper: -0.2% to $4.66/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1273
  • GBP/USD: +0.1% to 1.3380
  • USD/CNH: flat at 7.2151
  • USD/JPY: -0.2% to 144.51
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (Prior 1.1%)
  • 10:30 ET: EIA Crude Oil Inventories (Prior +3.45M)
  • 12:15 ET: Richmond Fed President Barkin (non-FOMC voter) and Fed Governor Bowman (FOMC voter) in Fed Listens event
  • 13:00 ET: $16 bln 20-yr Note Auction