Bond Market Update

Deficit Angst

• U.S. Treasuries saw some overnight selling that took the 10-yr note yield as high as 4.53% and the 30-yr bond yield up to 5.03% before being met with resistance. Those moves occurred in conjunction with a report that the U.S. Court of International Trade ruled that President Trump does not have the legal authority to impose reciprocal tariffs. This ruling is going to be appealed, but for the time being, it has enthused equity markets. The Treasury market, on the other hand, is under some pressure as it wrestles with deficit concerns. This new ruling would imply that the U.S. won't be collecting as much tariff revenue (a source reportedly for paying down the debt) as previously projected; meanwhile, the Joint Committee on Taxation has increased its estimated cost for the House's reconciliation bill to $3.94 trillion over the next decade (from $3.8 trln) on account of the change to the SALT deduction cap. More supply is on the way today, too, with a $44 billion 7-yr note auction. The results of that auction will be out at 1:00 p.m. ET, and they will be preceded by a batch of economic data that includes the revised Q1 GDP report and initial and continuing jobless claims at 8:30 a.m. ET.
• Yield Check:
  • 2-yr: +2 bps to 4.01%
  • 3-yr: +3 bps to 3.99%
  • 5-yr: +2 bps to 4.09%
  • 10-yr: +2 bps to 4.50%
  • 30-yr: +1 bps to 4.99%

• News:
  • US Court of International Trade blocks President Trump from imposing tariffs under emergency authority including 10% global tariff, 25% tariffs on Canada/Mexico and 30% China tariffs; White House will appeal this ruling
    • President Trump could reimpose tariffs under section 122 or 232 authority despite today's court ruling. He could also ask the Supreme Court to issue an emergency stay, according to CNN
  • United States Congressional Joint Committee on Taxation says revised reconciliation bill that passed House will add $3.94 trillion to deficits over 10 years (Note: Senate is expected to make changes before final passage)
  • U.S. and Iran are closing in on a broad nuclear agreement that could be reached during the next round of talks, according to CNN
  • The Bank of Korea lowered its policy rate by 25 basis points to 2.50%, as expected, and Governor Rhee said that he sees room for additional cuts
  • FT reported that the U.K. wants to accelerate the implementation of a trade deal with the U.S.
  • European Central Bank policymaker Kazimir was fined EUR200,000 after being found guilty of bribery by a court in Slovakia
• Commodities:
  • WTI crude: +0.5% to $62.16/bbl
  • Gold: +0.1% to $3297.80/ozt
  • Copper: +0.7% to $4.71/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1277
  • GBP/USD: -0.1% to 1.3461
  • USD/CNH: -0.1% to 7.1884
  • USD/JPY: +0.1% to 144.99
• 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)