Bond Market Update

Pivoting from Weakness to Strength

• U.S. Treasuries came into the cash session in a weakened state, succumbing to selling interest overnight following the news that the U.S. Court of International Trade ruled that President Trump does not have the legal authority to enforce the implementation of reciprocal tariffs. That ruling is being appealed. What Treasuries lost in the overnight trade, though, was recouped and then some in the cash session. At their highs, the 10-yr note yield and 30-yr bond yield hit 4.53% and 5.03%, respectively, yet they settled at 4.43% and 4.93%. Yields faded back initially on some technical buying interest but gathered steam following the release of the second estimate for Q1 GDP, which showed a downward revision for personal spending; initial claims data that showed the highest level for continuing jobless claims since November 13, 2021; and a 6.3% decline in pending home sales for April. The gains were solidified with the arrival of a $44 billion 7-yr note auction that was met with strong demand. Although today ended up being a good day for Treasuries, that wasn't the case for the dollar, which lost ground against other major currencies. The U.S. Dollar Index was down 0.6% to 99.28, as of this writing, having reversed a 0.7% gain in the overnight trade. (Note: breaking news indicates the U.S. Appeals Court has granted the White House's request to temporarily reinstate tariffs.)
• Yield Check:
  • 2-yr: -5 bps to 3.94%
  • 3-yr: -5 bps to 3.91%
  • 5-yr: -7 bps to 4.00%
  • 10-yr: -5 bps to 4.43%
  • 30-yr: -5 bps to 4.93%

• 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
  • After court blow to tariffs, President Trump to take fight to Supreme Court, according to Bloomberg
  • 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)
  • "At the President's invitation, Chair Powell met with the President today at the White House to discuss economic developments, including for growth, employment, and inflation. Chair Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook."
  • 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
• Today's Data:
  • Initial jobless claims for the week ending May 24 increased by 16,000 to 240,000 (Briefing.com consensus 230,000), while continuing jobless claims for the week ending May 17 increased by 26,000 to 1.919 million, hitting their highest level since November 13, 2021.
    • The key takeaway from the report was the tandem jump in initial and continuing jobless claims, which denotes some increased layoff activity and some increased difficulty in finding a new job after being laid off.
  • The second estimate for the Q1 GDP report showed a 0.2% decline in real GDP (Briefing.com consensus -0.3%) versus the 0.3% decline reported in the advance estimate. The GDP Price Deflator was unrevised at 3.7% (Briefing.com consensus 3.7%) following a 2.3% increase in Q4.
    • The key takeaway from the report is that it featured a downward revision to personal spending to 1.2% from 1.8% in the advance estimate, underscoring how the tariff uncertainty and inflation angst tempered consumer spending activity.
  • April Pending Home Sales -6.3% (Briefing.com consensus -1.1%) versus downwardly revised 5.5% increase (from 6.1%) for March
  • $44 bln 7-yr note auction
    • High yield: 4.194% (When-Issued: 4.216%)
    • Bid-to-cover: 2.69 (prior 12-auction avg: 2.59)
    • Indirect bid: 71.5% (prior 12-auction avg: 69.6%)
    • Direct bid: 23.6% (prior 12-auction avg: 19.3%)
• Commodities:
  • WTI crude: -1.4% to $62.16/bbl
  • Gold: +0.8% to $3343.70/ozt
  • Copper: unch at $4.67/lb
• Currencies:
  • EUR/USD: +0.8% to 1.1375
  • GBP/USD: +0.2% to 1.3498
  • USD/CNH: -0.1% to 7.1869
  • USD/JPY: -0.6% to 144.00
• The Day Ahead:
  • 08:30 ET: April Adv. Intl. Trade in Goods (prior -$162.0B), Retail Inventories (prior -0.1%), and Wholesale Inventories (prior 0.5%)
  • 08:30 ET: April Personal Income (Briefing.com consensus 0.3%; prior 0.5%), Personal Spending (Briefing.com consensus 0.2%; prior 0.7%), PCE Price Index (Briefing.com consensus 0.1%; prior 0.0%), and Core-PCE Price Index (Briefing.com consensus 0.1%; prior 0.0%)
  • 09:45 ET: May Chicago PMI (Briefing.com consensus 45.0; prior 44.6)
  • 10:00 ET: May Univ. of Michigan Consumer Sentiment - Final (Briefing.com consensus 50.8; prior 50.8)
  • 16:45 ET: San Francisco Fed President Daly (non-FOMC voter)