Bond Market Update

Trying to Reconcile Reconciliation Bill

• U.S. Treasuries saw some relatively calm action overnight following yesterday's big sell-off, as flash manufacturing and services PMI readings out of Japan and the eurozone were underwhelming. Longer-dated maturities have started to weaken again, however, following the news that the House passed the reconciliation bill in a 215-214 party-line vote. The bill, among other things, raises the SALT deduction cap to $40,000 (from $10,000), moves up the Medicaid work requirement to December 2026 from 2029, and increases the debt ceiling by $4 trillion. The Tax Foundation estimates the bill will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years. The U.S. Dollar Index is up 0.2% to 99.74.
• Yield Check:
  • 2-yr: -1 bp to 4.00%
  • 3-yr: -2 bps to 3.99%
  • 5-yr: -1 bp to 4.15%
  • 10-yr: +1 bp to 4.61%
  • 30-yr: +5 bps to 5.14%

• 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)
• Commodities:
  • WTI crude: -1.5% to $60.63/bbl
  • Gold: -0.4% to $3299.70/ozt
  • Copper: -1.4% to $4.61/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1306
  • GBP/USD: flat at 1.3420
  • USD/CNH: flat at 7.2034
  • USD/JPY: -0.2% to 143.40
• The Day Ahead:
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus 232K; prior 229K) and Continuing Jobless Claims (prior 1881K)
  • 09:45 ET: Preliminary May S&P Global US Manufacturing PMI (prior 50.2) and Services PMI (prior 50.8)
  • 10:00 ET: April Existing Home Sales (Briefing.com consensus 4.15M; prior 4.02M)
  • 10:30 ET: EIA Natural Gas Inventories (prior +110 bcf)