Bond Market Update

Opening Weakness Reversed

• U.S. Treasuries added to their gains from Tuesday, but longer tenors were at the forefront of the midweek advance after lagging yesterday. The market faced some early pressure after a night that featured news of some monetary easing in China and a scheduled weekend meeting between trade officials from China and the United States. Treasuries began rising off their starting lows in morning trade, continuing their bounce into the afternoon. The gains were extended in immediate reaction to the FOMC Statement for May, but the market eventually returned to levels seen just before the release of the directive. The FOMC Statement acknowledged that uncertainty around the economic outlook has increased amid a rising risk of higher unemployment and higher inflation. During his press conference, Fed Chairman Powell repeated that the current policy stance leaves the Fed well positioned to respond to potential shocks. The FOMC Statement was released shortly after President Trump said that he is not open to pulling back the 145% tariff on imports from China as part of negotiations, tempering some of the optimism from the initial report about an upcoming meeting. Treasuries finished the day near their best levels with the 10-yr yield essentially settling on its 50-day moving average (4.276%). Crude oil surrendered an overnight gain while the U.S. Dollar Index rose 0.4% to 99.65.
• Yield Check:
  • 2-yr: UNCH at 3.79%
  • 3-yr: UNCH at 3.76%
  • 5-yr: -3 bps to 3.87%
  • 10-yr: -3 bps to 4.28%
  • 30-yr: -4 bps to 4.77%

• News:
  • The EU is expected to announce tariff countermeasures tomorrow that will be implemented if talks fail, according to Reuters.
  • India and Pakistan exchanged live fire along the Kashmir line, serving as a reminder of the elevated tension between the two nuclear powers.
  • 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%.
  • 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%).
• Today's Data:
  • The weekly MBA Mortgage Index rose 11.0% to follow last week's 4.2% decrease. The Purchase Index was up 11.1% while the Refinance Index was also up 11.1%.
  • Total Consumer Credit increased by $10.2 bln in March (Briefing.com consensus $11.0 bln) after decreasing by a revised $700 mln (from -$800 mln) in February.
  • Weekly crude oil inventories decreased by 2.032 mln barrels after decreasing by 2.696 mln barrels a week ago.
• Commodities:
  • WTI crude: -1.7% to $58.09/bbl
  • Gold: -0.9% to $3392.70/ozt
  • Copper: -2.5% to $4.66/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1326
  • GBP/USD: -0.4% to 1.3315
  • USD/CNH: +0.2% to 7.2225
  • USD/JPY: +0.8% to 143.58
• The Day Ahead:
  • 8:30 ET: Preliminary Q1 Productivity (Briefing.com consensus -0.4%; prior 1.5%), preliminary Q1 Unit Labor Costs (Briefing.com consensus 4.0%; prior 2.2%), weekly Initial Claims (Briefing.com consensus 238,000; prior 241,000), and Continuing Claims (prior 1.916 mln)
  • 10:00 ET: March Wholesale Inventories (Briefing.com consensus 0.5%; prior 0.3%)
  • 10:30 ET: Weekly natural gas inventories (prior +107 bcf)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results