Bond Market Update

Short End Leads Pullback

• U.S. Treasuries are on track for a mixed start with shorter tenors expected to show some early relative weakness after outperforming over the past two days. Treasury futures climbed at the start of the Asian session, but the gains faded as the night went on. The market hit fresh lows once the focus turned to action in Europe, followed by a return toward overnight highs. Representatives from China and the U.S. will meet in Switzerland to discuss trade over the weekend, though expectations for immediate tariff relief are low. Accordingly, Chinese officials announced a series of stimulus measures that include a 50-basis point cut to the reserve requirement ratio (to 9.00%), a ten-basis point cut to the seven-day reverse repurchase rate (to 1.40%), and a lowering of the standing lending facility rate to 2.25%. Economic data released overnight showed an in-line dip in eurozone's Retail Sales for March (-0.1%), while the U.S. calendar will be sparse. That said, the FOMC will conclude its two-day policy meeting with an FOMC Statement at 14:00 ET and Fed Chairman Powell's press conference at 14:30 ET, though a rate cut is not expected today. Crude oil is inching higher while the U.S. Dollar Index is up 0.2% at 99.41.
• Yield Check:
  • 2-yr: +3 bps to 3.82%
  • 3-yr: +3 bps to 3.79%
  • 5-yr: +3 bps to 3.93%
  • 10-yr: +2 bps to 4.33%
  • 30-yr: UNCH at 4.81%

• News:
  • India and Pakistan exchanged live fire along the Kashmir line, serving as a reminder of the elevated tension between the two nations.
  • China's April FX Reserves reached $3.282 trln (last $3.241 trln).
  • Japan's April Services PMI hit 52.4 (expected 52.2; last 50.0).
  • Hong Kong's April Manufacturing PMI hit 48.3 (last 48.3).
  • Australia's April AIG Manufacturing Index hit -26.5 (last -29.7) and AIG Construction Index hit -7.9 (last -19.3).
  • New Zealand's Q1 employment increased by 0.1% qtr/qtr, as expected (last -0.1%). Q1 Labor Cost Index was up 0.4% qtr/qtr (expected 0.5%; last 0.6%), rising 2.5% yr/yr (expected 2.7%; last 2.9%). Q1 Unemployment Rate remained at 5.1% (expected 5.3%) and Participation Rate dipped to 70.8% from 70.9% (expected 71.0%).
  • Eurozone's March Retail Sales were down 0.1% m/m, as expected (last 0.2%) but up 1.5% yr/yr (expected 1.6%; last 1.9%).
  • Germany's March Factory Orders rose 3.6% m/m (expected 1.4%; last 0.0%).
  • France's March Current Account surplus reached EUR1.40 bln (last deficit of EUR1.60 bln). March trade deficit reached EUR6.2 bln (expected deficit of EUR7.0 bln; last deficit of EUR7.7 bln). Q1 nonfarm payrolls were unchanged qtr/qtr, as expected (last -0.3%).
  • Italy's March Retail Sales were down 0.5% m/m (expected 0.2%; last 0.1%), falling 2.8% yr/yr (last -1.4%).
• Commodities:
  • WTI Crude: +0.8% to $59.56/bbl
  • Gold: -0.8% to $3395.00/ozt
  • Copper: -2.1% to $4.68/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1361
  • GBP/USD: -0.2% to 1.3347
  • USD/CNH: +0.1% to 7.2197
  • USD/JPY: +0.7% to 143.36
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 11.0%; 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)