Bond Market Update

Rising Geopolitical Tensions Fuel Inflationary Worries

• U.S. Treasuries finished the week on a sharply lower note amid a jump in energy prices, which fueled concerns about an inflationary spike that could result in an even longer delay to the next rate cut from the Fed. Crude oil jumped $5.12, or 7.5%, to $73.16/bbl, extending this week's gain to $8.57, or 13.3%, after Israel struck Iranian nuclear facilities overnight. Iran retaliated with a missile strike on Israel in the afternoon, inviting speculation about a further escalation over the weekend. Treasuries started the day in positive territory, but spent the entire session in a steady retreat that lifted the 10-yr yield back above its 50-day moving average (4.374%), though the benchmark yield still fell nine basis points for the week. The U.S. Dollar Index rose 0.3% to 98.19, narrowing this week's loss to 1.0%.
• Yield Check:
  • 2-yr: +5 bps to 3.96% (-8 bps this week)
  • 3-yr: +6 bps to 3.92% (-9 bps this week)
  • 5-yr: +6 bps to 4.02% (-11 bps this week)
  • 10-yr: +7 bps to 4.42% (-9 bps this week)
  • 30-yr: +7 bps to 4.92% (-4 bps this week)

• News:
  • Iran will not participate in nuclear talks that were scheduled for Sunday, according to CNBC.
  • The Fed will release the results of its latest stress test of banks on June 27 at 16:30 ET.
  • Japan is likely to hold an upper house election on July 20.
  • China's May New Loans reached CNY620.0B (expected CNY890.0B; last CNY280.0B).
  • Japan's April Industrial Production was down 1.1% m/m (expected -1.2%; last 0.2%).
  • New Zealand's May Business NZ PMI hit 47.5 (last 53.3).
  • Eurozone's April Industrial Production was down 2.4% m/m (expected -1.6%; last 2.4%) but up 0.8% yr/yr (expected 1.4%; last 3.7%); April Trade surplus reached EUR9.9B (expected EUR18.2B; last EUR37.3B).
  • Germany's May CPI was up 0.1% m/m (expected 0.1%; last 0.4%), rising 2.1% yr/yr (expected 2.1%; last 2.1%).
  • France's May CPI was down 0.1% m/m (expected -0.1%; last 0.6%) but was up 0.7% yr/yr (expected 0.7%; last 0.8%).
  • Spain's May CPI was up 0.1% m/m (expected 0.0%; last 0.6%), rising 2.0% yr/yr (expected 1.9%; last 2.2%).
• Today's Data:
  • The preliminary University of Michigan Index of Consumer Sentiment for June rose to 60.5 (Briefing.com consensus 53.0) from the final reading of 52.2 for May. In the same period a year ago, the index stood at 68.2.
    • The key takeaway from the report is that the June survey showed overall improvement in current sentiment and the expectations index, underscored by a sizable drop in year-ahead inflation expectations. Furthermore, there was an improvement in expected business conditions for the short and the long term.
• Commodities:
  • WTI crude: +7.5% to $73.16/bbl
  • Gold: +1.5% to $3452.30/ozt
  • Copper: -0.4% to $4.82/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1539
  • GBP/USD: -0.4% to 1.3564
  • USD/CNH: +0.2% to 7.1890
  • USD/JPY: +0.3% to 143.97
• The Week Ahead:
  • Monday: June Empire State Manufacturing survey (Briefing.com consensus -6.6; prior -9.2) at 8:30 ET and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Tuesday: May Retail Sales (Briefing.com consensus -0.6%; prior 0.1%), Retail Sales ex-auto (Briefing.com consensus 0.1%; prior 0.1%), May Import Prices (prior 0.1%), Export Prices (prior 0.1%), Import Prices ex-oil (prior 0.4%), and Export Prices ex-agriculture (prior 0.1%) at 8:30 ET; May Industrial Production (Briefing.com consensus 0.1%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 77.7%; prior 77.7%) at 9:15 ET; April Business Inventories (Briefing.com consensus 0.0%; prior 0.1%) and June NAHB Housing Market Index (Briefing.com consensus 36; prior 34) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 12.5%) at 7:00 ET; May Housing Starts (Briefing.com consensus 1.356 mln; prior 1.361 mln) and Building Permits (Briefing.com consensus 1.411 mln; prior 1.412 mln) at 8:30 ET; weekly crude oil inventories (prior -3.64 mln) at 10:30 ET; June FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%) at 14:00 ET; and April Net Long-Term TIC Flows (prior $161.8 bln) at 16:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 253,00; prior 248,000) and Continuing Claims (prior 1.956 mln) at 8:30 ET; and weekly natural gas inventories (prior +109 bcf) at 10:30 ET
  • Friday: June Philadelphia Fed survey (Briefing.com consensus 0.3; prior -4.0) at 8:30 ET and May Leading Indicators (Briefing.com consensus -0.1%; prior -1.0%) at 10:00 ET