Bond Market Update

Try, Try (Again)

• U.S. Treasuries ran into some selling pressure in the overnight trade, pressured by a higher-than-expected CPI print out of the UK and deficit concerns, with press reports suggesting the SALT cap would be raised to $40,000 while demands for larger Medicaid cuts were dropped. Speaker Johnson confirmed the SALT deduction increase on CNN. The selling pressure has pushed the 10-yr note yield above 4.50% (again) and the 30-yr bond yield above 5.00% (again) in front of today's $16 billion 20-yr note auction. The market's attention will be fixed on whether support comes in (again) to take the 10-yr and 30-yr back below 4.50% and 5.00%, and what demand, particularly indirect demand, looks like for the 20-yr note. The U.S. Dollar Index is down 0.5% to 99.67.
• Yield Check:
  • 2-yr: +2 bps to 3.99%
  • 3-yr: +3 bps to 3.97%
  • 5-yr: +5 bps to 4.11%
  • 10-yr: +5 bps to 4.53%
  • 30-yr: +6 bps to 5.03%

• News:
  • Republican leadership is getting close to a deal with holdouts on large reconciliation bill. House rules committee is meeting now, and the final House vote is expected this week (possibly tonight). Deal will raise state and local tax deduction to $40,000 & phase out clean energy tax cuts faster. Conservatives drop demands for larger Medicaid cuts, according to Politico
  • House Speaker Mike Johnson confirms on CNN that agreement has been reached to raise state and local tax deduction in large reconciliation bill to $40K (from $10K current law and from $30K in original bill text)
  • Intelligence suggests Israel is preparing to strike Iran's nuclear facilities, according to CNN
  • G-7 countries are considering tariffs on low value products from China, according to Bloomberg
  • The Trump administration considering plan to open retirement accounts to private equity, according to FT
  • ECB Vice President de Guindos said that the ECB is not rushing to cut rates due to worries about persistent wage growth
  • Longer-dated JGBs extended yesterday's sharp losses before bouncing
  • South Korea's exports through the first 20 days of May were down 2.4% yr/yr
  • MBA Mortgage Applications Index -5.1% wk/wk, with refinance applications -5% and purchase applications -5%
  • U.K.'s April CPI 1.2% m/m (expected 1.1%; last 0.3%); 3.5% yr/yr (expected 3.3%; last 2.6%). April Core CPI 1.4% m/m (expected 1.2%; last 0.5%); 3.8% yr/yr (expected 3.6%; last 3.4%)
• Commodities:
  • WTI crude: +0.8% to $62.50/bbl
  • Gold: +0.8% to $3310.40/ozt
  • Copper: +0.6% to $4.68/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1329
  • GBP/USD: +0.1% to 1.3406
  • USD/CNH: -0.2% to 7.2022
  • USD/JPY: -0.5% to 143.78
• The Day Ahead:
  • 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