Bond Market Update

Overcoming a Shaky Start

• U.S. Treasuries had a shaky start following the news that the House passed the reconciliation bill in a 215-214 party-line vote. The bill, among other things, raised the SALT deduction cap to $40,000 (from $10,000), moved up the Medicaid work requirement to December 2026 from 2029, and increased the debt ceiling by $4 trillion. The 10-yr note yield kissed 4.63%, and the 30-yr bond yield climbed to 5.15%, ostensibly on some deficit angst, but buyers emerged at those levels and forced a reversal that was helped by short-covering activity and a disappointing Existing Home Sales Report for April that printed the lowest annualized pace of sales for that month (4.00 mln) since 2009. The U.S. Dollar Index (+0.4% to 99.92) gained ground as Treasury yields reversed.
• Yield Check:
  • 2-yr: -1 bp to 4.00%
  • 3-yr: -3 bps to 3.98%
  • 5-yr: -5 bps to 4.11%
  • 10-yr: -5 bps to 4.55%
  • 30-yr: -3 bps to 5.06%

• News:
  • House passes large reconciliation bill by a vote of 215-214-1 which includes extension of 2017 tax cuts for all income levels, spending cuts (Medicaid and green energy spending), deregulation, energy reform, immigration reform, and a debt ceiling increase of $4 trillion; bill now heads to the Senate where changes are expected
  • The Tax Foundation estimates the reconciliation bill will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years
  • Japan's Finance Minister Kato said that U.S. Treasury Secretary Bessent agreed that foreign exchange levels should be determined by the market, suggesting that currencies will not be part of trade negotiations with Japan
  • More than half of Japanese companies reportedly want the Bank of Japan to pause its tightening campaign due to tariffs
  • OPEC considering another large production increase in July, according to Bloomberg
  • President Trump privately told European leaders that Russian President Putin is not prepared to end war, according to The Wall Street Journal
  • JP Morgan CEO Jamie Dimon warns of stagflation risks in the economy, according to Bloomberg
  • Bitcoin crosses $111,000 for first time amid increasing institutional demand, according to Bloomberg
  • Japan's flash May Manufacturing PMI 49.0, as expected (last 48.7) and flash Services PMI 50.8 (last 52.4)
  • Eurozone's flash May Manufacturing PMI 48.4 (expected 49.2; last 49.0) and flash Services PMI 48.9 (expected 50.4; last 50.1)
• Today's Data:
  • Initial jobless claims for the week ending May 17 decreased by 2,000 to 227,000 (Briefing.com consensus 232,000), while continuing jobless claims for the week ending May 10 increased by 36,000 to 1.903 million.
    • The key takeaway from the report is that initial jobless claims are running steady at levels that are well below recession-type readings; moreover, this report covered the period in which the survey for the May employment report was conducted and should contribute to expectations that nonfarm payrolls will again show a relatively solid print.
  • Preliminary May S&P Global US Manufacturing PMI (Actual 52.3; prior 50.2) and Services PMI (Actual 52.3; prior 50.8).
  • Existing home sales decreased 0.5% month-over-month in April to a seasonally adjusted annual rate of 4.00 million (Briefing.com consensus 4.15 million) from an unrevised 4.02 million in March. Sales were down 2.0% from the same period a year ago.
    • The key takeaway from the report is that the median existing home price reached an April record of $414,000, putting the spotlight on affordability constraints as prices rise alongside mortgage rates.
• Commodities:
  • WTI crude: -0.6% to $61.21/bbl
  • Gold: -0.6% to $3295.10/ozt
  • Copper: +0.2% to $4.68/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1283
  • GBP/USD: flat at 1.3427
  • USD/CNH: flat at 7.2037
  • USD/JPY: +0.3% to 144.09
• The Day Ahead:
  • 09:35 ET: Kansas City Fed President Schmid (FOMC voter)
  • 10:00 ET: April New Home Sales (Briefing.com consensus 679K; prior 724K)
  • 12:00 ET: Fed Governor Cook (FOMC voter)