Bond Market Update

Longer Tenors Overcome Early Pressure

• U.S. Treasuries finished Tuesday with gains across the curve after longer tenors overcame some early softness. The trading day started with relative strength up front and a continuation of yesterday's underperformance in the long end. Treasuries were eager to bounce, climbing off their opening levels during the initial hour of action. That move met some resistance, which sent 10s and 30s back into the red, but a shaky showing from equities invited some buying interest in Treasuries. Treasury Secretary Bessent appeared on Capitol Hill today and will do so again tomorrow. During today's remarks, he said that some trade deals could be announced as early as this week and that up to 90% of deals could be completed by the end of the year. He also said that he expects the contractionary reading of Q1 GDP (-0.3%) to be revised up. Treasuries ranged just above their lows into the early afternoon before extending to new highs in the wake of today's $42 bln 10-yr note sale, which met strong demand. Crude oil extended yesterday's bounce off its April low near the $55/bbl area, while the U.S. Dollar Index fell 0.6% to 99.27.
• Yield Check:
  • 2-yr: -5 bps to 3.79%
  • 3-yr: -6 bps to 3.76%
  • 5-yr: -5 bps to 3.90%
  • 10-yr: -4 bps to 4.31%
  • 30-yr: -2 bps to 4.81%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was increased to 2.2% from 1.1% in the previous estimate.
  • Friedrich Merz became Germany's chancellor despite losing the first round of parliamentary voting, serving as a reminder of weak political unity in the eurozone's core economy.
  • The Taiwanese Dollar pulled back against the greenback, easing from a near-10% surge during the previous two days.
  • Japanese press reported that the U.S. rejected Japan's request for a full exemption from reciprocal tariffs, but there is potential for the rate to be lowered.
  • EU Trade Commissioner Sefcovic warned that ongoing U.S. investigations could lead to tariffs covering nearly all EU exports, calling the situation "not acceptable" while stressing the need for a negotiated solution.
  • China's April Caixin Services PMI hit 50.7 (expected 51.7; last 51.9).
  • India's April Services PMI hit 58.7 (expected 59.1; last 58.5).
  • Australia's March Building Approvals were down 8.8% m/m (expected -1.7%; last -0.2%) but up 9.9% yr/yr (expected 9.1%; last 10.3%). March Private House Approvals were down 4.5% m/m (last 1.1%).
  • Eurozone's April Services PMI hit 50.1 (expected 49.7; last 51.0). March PPI was down 1.6% m/m (expected -1.4%; last 0.2%) but up 1.9% yr/yr (expected 2.0%; last 3.0%).
  • Germany's April Services PMI hit 49.0 (expected 48.8; last 50.9). 
  • U.K.'s April Services PMI hit 49.0 (expected 48.9; last 52.5).
  • France's March Industrial Production was up 0.2% m/m (expected 0.4%; last 1.0%). April Services PMI hit 47.3 (expected 46.8; last 47.9).
  • Swiss April Unemployment Rate remained at 2.8%, as expected.
  • Italy's April Services PMI hit 52.9 (expected 51.3; last 52.0).
  • Spain's April Unemployment decreased by 67,400 (expected 6,500; last -13,300). April Services PMI hit 53.4 (expected 53.9; last 54.7).
• Today's Data:
  • The trade deficit widened to a record $140.5 billion in March (Briefing.com consensus -$127.5 billion) from a downwardly revised $123.2 billion (from -$122.7 billion) in February. The widening was the result of March exports being $0.5 billion more than February exports and March imports being $17.8 billion more than February imports.
    • The key takeaway from the report is the surge in imports, which detracted sharply from Q1 GDP, and was highlighted by a $22.5 billion increase in imports of consumer goods that was led by a $20.9 billion increase in pharmaceutical preparations. 
  • $42 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.342% (4.334%).
    • Bid-to-cover: 2.60 (2.55).
    • Indirect bid: 71.2% (69.3%).
    • Direct bid: 19.9% (16.5%).
• Commodities:
  • WTI crude: +3.4% to $59.08/bbl
  • Gold: +3.0% to $3424.80/ozt
  • Copper: +1.9% to $4.78/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1372
  • GBP/USD: +0.7% to 1.3376
  • USD/CNH: +0.2% to 7.2093
  • USD/JPY: -0.9% to 142.47
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -4.2%)
  • 10:30 ET: Weekly crude oil inventories (prior -2.696 mln)
  • 14:00 ET: May FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%)
  • 15:00 ET: March Consumer Credit (Briefing.com consensus $11.0 bln; prior -$0.8 bln)