Bond Market Update

Buyers in Command

• U.S. Treasuries were backed by steady buying momentum throughout today's cash session. Buying began overnight, however, as participants digested reports that Japan is considering cutting back its issuance of long-dated bonds, and the word from President Trump that he will delay the implementation of a 50% tariff rate for the EU until July 9 to allow more time to negotiate a trade deal. That decision came after a conversation he had with European Commission President von der Leyen, who now seems intent on accelerating trade talks. Long bonds led today's rally effort, which occurred alongside an okay $69 billion 2-yr note auction, a stronger-than-expected Consumer Confidence Index for May that revealed a dip in average 12-month inflation expectations, and gains in the dollar. The U.S. Dollar Index jumped 0.4% to 144.25.
• Yield Check:
  • 2-yr: -3 bps to 3.96%
  • 3-yr: -4 bps to 3.92%
  • 5-yr: -6 bps to 4.02%
  • 10-yr: -8 bps to 4.43%
  • 30-yr: -10 bps to 4.94%

• News:
  • President Trump agrees to extend deadline for EU tariffs to July 9 and says talks will begin "rapidly"
  • EU agrees to accelerate discussions with U.S. to avoid trade war, according to Bloomberg
  • Senator Ron Johnson (R-WI) in interview says there is enough Senate Republicans to hold up the reconciliation bill unless larger spending cuts are included, according to CNN
  • President Trump could issue additional Russian sanctions as soon as this week, according to The Wall Street Journal
  • Minneapolis Fed President Kashkari (non-FOMC voter) suggests more time needed to assess data to determine policy course
  • President Trump spoke to Israeli Prime Minister Benjamin Netanyahu and cautioned him not to take any action that would jeopardize possible Iranian nuclear deal, according to Axios
  • Judge blocks Trump administration plan to transfer student loans to SBA; Trump administration will appeal, according to CNBC
  • Atlanta Fed lowers Q2 GDP estimate to +2.2% from +2.4% prior
  • Japan mulling trimming issuance of long dated bonds, according to Reuters
  • Japan wants to reach tariff agreement with U.S. in June, according to Bloomberg
• Today's Data:
  • Total durable goods orders decreased 6.3% month-over-month in April (Briefing.com consensus -8.1%) following a downwardly revised 7.6% increase (from 9.2%) in March, with a 17.1% decline in transportation equipment orders acting as the key drag. Excluding transportation, durable goods orders rose 0.2% month-over-month (Briefing.com consensus 0.0%) following a downwardly revised 0.2% decline (from 0.0%) in March.
    • The key takeaway from the report is that there was a big dropoff in business spending, evidenced by the 1.3% decline in new orders for nondefense capital goods excluding aircraft.
  • March FHFA Home Price Index -0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.0% (from 0.1%) in February.
  • March S&P Case-Shiller Home Price Index increased 4.1% yr/yr (Briefing.com consensus 4.4%) following an unrevised 4.5% increase in February.
  • The Conference Board's Consumer Confidence Index jumped to 98.0 in May (Briefing.com consensus 87.0) from a downwardly revised 85.7 (from 86.0) in June, breaking a string of five consecutive months of decline.
    • The key takeaway from the report is that there was a clear connection between the increase in consumer confidence and the pause in the reciprocal tariff rates, which triggered a material rally in stock prices and improved forecasts for the economic outlook. Note: roughly half of the responses came after the May 12 news that the U.S. and China were pausing their respective reciprocal tariff rates.
  • $69 billion 2-yr note auction saw the high yield of 3.955% stop through the when-issued yield of 3.965% by one basis point on dollar demand that was a little lighter than average.
• Commodities:
  • WTI crude: -1.0% to $60.91/bbl
  • Gold: -2.0% to $3300.60/ozt
  • Copper: -2.1% to $4.74/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1336
  • GBP/USD: -0.4% to 1.3512
  • USD/CNH: +0.2% to 7.1900
  • USD/JPY: +1.0% to 144.24
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -5.1%)
  • 13:00 ET: $70 billion 5-yr note auction
  • 14:00 ET: FOMC Minutes for May 6-7 meeting