Bond Market Update

A Test for Longer-dated Treasuries

• U.S. Treasuries were subjected to some selling interest during the cash session that took yields higher across the curve. This followed overnight action that featured a 40-yr Japanese government bond auction that saw its weakest demand since July and it happened in the midst of new supply hitting with a $70 billion 5-yr note auction that was met with decent demand. Separately, the FOMC Minutes for the May 6-7 meeting conveyed increased uncertainty about the outlook and the potential for a difficult trade-off if inflation proves to be more persistent and the outlooks for growth and employment weaken. Those observations, which the market deemed known and dated, did not cause any real stir. Notably, the 10-yr note yield hit 4.50% at its session high, while the 30-yr bond yield hit 5.01%. Both quickly pulled back as buyer support came in to keep things in check. The U.S. Dollar Index was up 0.4% to 99.89.
• Yield Check:
  • 2-yr: +3 bps to 3.99%
  • 3-yr: +4 bps to 3.96%
  • 5-yr: +5 bps to 4.07%
  • 10-yr: +5 bps to 4.48%
  • 30-yr: +4 bps to 4.98%

• News:
  • FOMC Minutes for May 6-7 meeting convey increased uncertainty about the outlook and the potential for a difficult trade-off if inflation proves to be more persistent and the outlooks for growth and employment weaken
  • Japanese bond auction demand was the lowest since July of last year, according to Reuters
  • Elon Musk in an interview says he is disappointed that the large reconciliation bill does not contain more spending cuts, according to CBS News
  • OPEC reaffirms the level of overall crude oil production for OPEC and non-OPEC Participating Countries in the DoC as agreed in the 38th OPEC and non-OPEC Ministerial Meeting until 31 December 2026
  • Canadian Prime Minister Mark Carney says Canada and U.S. in discussions regarding new economic and security deal, according to The Wall Street Journal
  • Russian President Putin wants a pledge to halt NATO enlargement in exchange for a peace deal, according to Reuters
  • Speculation that ECB President Lagarde could leave her post about a year before the end of her term to become the chair of the World Economic Forum
  • Fed aiming to disband internal groups that were studying effects of climate change, according to Bloomberg
  • Vice President JD Vance reaffirms President Trump's support for the cryptocurrency industry during speech at bitcoin conference, according to CBS News
  • Iran might pause nuclear enrichment in exchange for rights and frozen funds, according to Reuters
  • Japan is reportedly willing to commit to buying JPY1 trln worth of chips as part of a potential trade deal with the U.S.
  • The Reserve Bank of New Zealand lowered its official cash rate by 25 basis points to 3.25%, as expected, though the policy statement had some hints of hawkishness
• Today's Data:
  • The MBA's Mortgage Applications Index declined 1.2% week-over-week, with purchase applications up 2% and refinance applications down 7%.
  • $70 bln 5-year Treasury note auction:
    • High yield: 4.071% (When-Issued: 4.075%)
    • Bid-to-cover: 2.39 (prior 12-auction avg: 2.39)
    • Indirect bid: 78.4% (prior 12-auction avg: 68.9%)
    • Direct bid: 12.4% (prior 12-auction avg: 18.1)
• Commodities:
  • WTI crude: +1.0% to $61.84/bbl
  • Gold: -0.01% to $3294.70/ozt
  • Copper: -0.2% to $4.67/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1294
  • GBP/USD: -0.3% to 1.3470
  • USD/CNH: flat at 7.1924
  • USD/JPY: +0.4% to 144.84
• The Day Ahead:
  • 08:30 ET: Q1 GDP - Second Estimate (Briefing.com consensus -0.3%; prior -0.3%) and Q1 GDP Deflator - Second Estimate (Briefing.com consensus 3.7%; prior 3.7%)
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus 230K; prior 227K) and Continuing Jobless Claims (prior 1903K)
  • 08:30 ET: Richmond Fed President Barkin (non-FOMC voter)
  • 10:00 ET: April Pending Home Sales (Briefing.com consensus -1.1%; prior 6.1%)
  • 10:40 ET: Chicago Fed President Goolsbee (FOMC voter)
  • 13:00 ET: $44 bln 7-yr note auction
  • 14:00 ET: Fed Governor Kugler (FOMC voter)
  • 16:00 ET: San Francisco Fed President Daly (non-FOMC voter)
  • 20:25 ET: Dallas Fed President Logan (non-FOMC voter)