Bond Market Update

A Safety Trade

• U.S. Treasuries were bid across the curve today, driven mostly by a flight to safety as President Trump rattled some sabers, saying everyone should evacuate Tehran immediately, that Iran's Supreme Leader is an easy target, and that his patience with Iran is wearing thin. Treasuries responded predominately to that news today, but not entirely, as the market also processed a batch of weaker-than-expected economic data that included May retail sales, May industrial production, and the June NAHB Housing Market Index. The U.S. Dollar Index jumped 0.8% to 98.81, as the greenback also advanced on a safe haven trade in front of Wednesday's FOMC rate decision and release of an updated Summary of Economic Projections.
• Yield check:
  • 2-yr: -2 bps to 3.95%
  • 3-yr: -3 bps to 3.90%
  • 5-yr: -6 bps to 3.98%
  • 10-yr: -7 bps to 4.39%
  • 30-yr: -7 bps to 4.89%
• News:
  • President Trump leaves G-7 early and returns to Washington, DC to focus on Middle East; says "everyone should immediately evacuate Tehran" (Iran's capital); denies reports that he has reached out to Iran for peace talks
  • President Trump requested that his national security team be ready in the White House Situation Room today and told reporters he wants a "real end" to Iran's nuclear program, according to ABC News
  • President Trump is becoming increasingly inclined to use U.S. military to strike Iranian nuclear facilities, according to CNN
  • President Trump posted on Truth Social "We know exactly where the so-called "Supreme Leader" is hiding. He is an easy target, but is safe there—we are not going to take him out (kill!), at least not for now. But we don't want missiles shot at civilians, or American soldiers. Our patience is wearing thin. Thank you for your attention to this matter!"
  • President Trump confirms implementation of UK/US trade deal, according to the Independent
  • European Commission President von der Leyen said at the G7 summit that EU countries should have a unified approach to challenging China's trade practices
  • Senate Republicans acknowledge the $10K cap for state and local tax deduction is a placeholder for future negotiations, as New York House Republicans say the cap is too low, according to The Hill
  • Senate tax committee proposed a full phase-out of solar and wind energy tax credits by 2028, according to Reuters
  • Senate Republicans to omit Medicare Advantage cuts but proposes more aggressive Medicaid cuts, according to Bloomberg
  • Senator Ron Johnson (R-WI) says he will not support the reconciliation bill because it doesn't cut spending enough, according to The Hill
  • CBO estimates $2.8 trillion deficit increase over 10 years from "One Big Beautiful Bill Act" based on dynamic scoring
  • Plaintiffs suing President Trump over tariff authority have asked the Supreme Court to make a ruling ahead of the Appeals Court
  • The Bank of Japan left its policy rate at 0.50%, as expected, and voted to slow JGB purchases by JPY200 bln per quarter, starting April 2026
  • Canadian Prime Minister Mark Carney expects a trade deal with the U.S. in 30 days, according to Reuters
  • President Trump tells reporters that the EU is not offering a fair trade deal, according to Reuters
  • Central banks are planning to purchase more gold this year and expect dollar holdings will fall, according to FT
  • Eurozone's June ZEW Economic Sentiment 35.3 (expected 23.5; last 11.6)
• Today's Data:
  • Retail sales declined 0.9% month-over-month in May (Briefing.com consensus -0.6%) following a downwardly revised 0.1% decline (from 0.1%) in April. Excluding autos, retail sales fell 0.3% month-over-month (Briefing.com consensus 0.1%) following a downwardly revised unchanged reading (from 0.1%) in April.
    • This was not a good report in terms of hard economic data. It reflected a more cautious-minded consumer, who, in general, pulled back spending on goods. Clothing and accessories store sales (+0.8%) were a surprising outlier, but otherwise, there was a retrenchment in spending in many discretionary categories, including electronics and appliance store sales (-0.6%) and food services and drinking places (-0.9%). This report will help support arguments that the Fed should be cutting rates soon.
  • Industrial production fell 0.2% month-over-month in May (Briefing.com consensus 0.1%) following an upwardly revised 0.1% increase (from 0.0%) in April. The capacity utilization rate was 77.4% (Briefing.com consensus 77.7), down from an unrevised 77.7% in April. Total industrial production increased 0.6% yr/yr while the capacity utilization rate was 2.2 percentage points below its long-run average.
    • The key takeaway from the report is that manufacturing output was little changed in May despite the announcement in early April that the reciprocal tariffs would be paused. The tepid activity is consistent with slower economic growth in its own right and likely also reflects the planning uncertainty that goes hand-in-hand with the tariff uncertainty.
  • May Import Prices (Actual 0.0%; prior 0.1%), Import Prices, Ex-Fuel (Actual 0.3%; prior 0.4%), Export Prices (Actual -0.9%; prior 0.1%), and Export Prices, ex ag (Actual -1.0%; prior 0.1%)
  • April Business Inventories (Actual 0.0%; Briefing.com consensus 0.0%; prior 0.1%)
  • June NAHB Housing Market Index (Actual 32; Briefing.com consensus 36; prior 34)
• Commodities:
  • WTI crude: +2.0% to $73.27/bbl
  • Gold: -0.3% to $3406.80/toz
  • Copper: -0.6% to $4.81/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1477
  • GBP/USD: -1.2% to 1.3424
  • USD/CNH: +0.1% to 7.1934
  • USD/JPY: +0.4% to 145.36
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior 12.5%)
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus 253K; prior 248K) and Continuing Jobless Claims (prior 1956K)
  • 08:30 ET: May Housing Starts (Briefing.com consensus 1356K; prior 1361K) and Building Permits (Briefing.com consensus 1411K; prior 1412K)
  • 10:30 ET: EIA Crude Oil Inventories (prior -3.64M)
  • 12:00 ET: EIA Natural Gas Inventories (prior +109 bcf)
  • 14:00 ET: FOMC Rate Decision and Summary of Economic Projections
  • 16:00 ET: April Net Long-Term TIC Flows