Bond Market Update

A Weaker Turn

• U.S. Treasuries took a weaker turn today, with losses seen across the curve. The back end underperformed slightly amid some inflation concerns that picked up with President Trump's announcement that the U.S. will be doubling the tariff rate for steel and aluminum imports to 50%, effective Wednesday, and on trade concerns with China saying it was the U.S. that violated the preliminary trade agreement reached in Geneva. Additionally, the Prices Index of the May ISM Manufacturing PMI remained elevated at 69.4%. Stocks, however, fared much better after some initial selling interest, heartened by a report that President Trump and President Xi are likely to speak this week. The turn higher in stocks occurred alongside the move lower in Treasuries, suggesting perhaps that some asset reallocation was in play. The dollar was not a beneficiary. It declined 0.6% to 98.74, with both the euro and yen registering big gains against the greenback.
• Yield Check:
  • 2-yr: +2 bps to 3.94%
  • 3-yr: +3 bps to 3.91%
  • 5-yr: +4 bps to 4.02%
  • 10-yr: +4 bps to 4.46%
  • 30-yr: +6 bps to 5.00%

• News:
  • China turns blame back on U.S. for violating preliminary trade agreement reached in Geneva, according to The Wall Street Journal
  • President Trump announces doubling of steel, aluminum tariffs to 50%, effective Wednesday, according to Reuters
  • China tells US not to 'play with fire' on Taiwan after Hegseth comments, according to Politico
  • OPEC+ agrees to raise production in July by 411,000 barrels per day, according to Bloomberg
  • Proposal for nuclear deal sent to Iran by U.S., according to New York Times
  • U.S. secretly offers Iran limited uranium enrichment in nuclear deal proposal, contradicting public stance, according to Axios
  • Trump administration seeking best offer from countries by Wednesday for trade negotiations, according to Reuters citing USTR drafted letter
  • Fed Governor Waller (FOMC voter) says rate cuts still possible in 2025, as he doesn't think price adjustments related to tariffs will be persistent, according to Reuters
  • Fed's Daly (non-FOMC voter) thinks two rate cuts in 2025 still likely, according to Bloomberg
  • Atlanta Fed GDPNow model estimate for Q2 real GDP growth increased to 4.6% from 3.8% on Friday
  • The European Central Bank is expected to announce a rate cut at the conclusion of its meeting on Thursday
  • Eurozone's May Manufacturing PMI 49.4 (expected 48.4; last 49.0)
  • China's May Manufacturing PMI 49.5, as expected (last 49.0) and Non-Manufacturing PMI 50.3 (expected 50.6; last 50.4)
• Today's Data:
  • The May ISM Manufacturing Index slipped to 48.5% in May (Briefing.com consensus 49.0%) from 48.7% in April. The dividing line between expansion and contraction is 50.0%, so the May reading suggests that activity in the manufacturing sector contracted at a slightly faster pace than the prior month.
    • The key takeaway from the report is that manufacturing sector activity was hampered in May by tariff uncertainty. Total construction spending decreased 0.4% month-over-month in April (Briefing.com consensus 0.1%) after a downwardly revised 0.8% decline (from -0.5%) in March.
  • Total private construction was down 0.7% month-over-month, while total public construction was up 0.4% month-over-month. On a year-over-year basis, total construction spending was down 0.5%.
    • The key takeaway from the report is that residential spending weakened noticeably with a downturn in new single-family construction.
• Commodities:
  • WTI crude: +3.0% to $62.57/bbl
  • Gold: +2.5% to $3397.30/ozt
  • Copper: +3.9% to $4.86/lb
• Currencies:
  • EUR/USD: +0.8% to 1.1434
  • GBP/USD: +0.6% to 1.3538
  • USD/CNH: +0.1% to 7.2091
  • USD/JPY: -0.8% to 142.82
• The Week Ahead:
  • 10:00 ET: April Factory Orders (Briefing.com consensus -3.1%; prior 4.3%)
  • 10:00 ET: April JOLTS - Job Openings (prior 7.192M)