Bond Market Update

Opening Losses Recovered as Market Ponders July Rate Cut

• U.S. Treasuries finished Friday on a higher note, padding their gains from earlier this week. The market followed yesterday's holiday closure with a lower start across the curve after President Trump said that he will decide on a course of action with respect to Iran over the next two weeks, but the entire complex began recovering its modest early losses shortly after the start. That rebound took place in response to comments from Fed Governor Waller, who said that tariffs will not result in a meaningful boost to inflation and that the Fed could cut the fed funds rate range at its next meeting in July. That was a bit surprising, considering the fed funds futures is nearly certain that a rate cut will not be announced before September. Mr. Waller's comments gave a small boost to rate cut expectations, but at 14.5%, the implied likelihood of a cut on July 30 is still well below the 50.0% threshold. The rebound returned the 10-yr note to its unchanged level about three hours after the cash start with the market seeing some additional buying in the afternoon. The daylong rally sent yields on 5s and 10s back below their respective 50-day moving averages while the 2-yr yield and the 30-yr yield finished the day just above their 50-day moving averages. Crude oil finished the week just shy of the $74/bbl level while the U.S. Dollar Index fell 0.2% to 98.70, narrowing this week's gain to 0.6%.
• Yield Check:
  • 2-yr: -3 bps to 3.91% (-5 bps this week)
  • 3-yr: -4 bps to 3.86% (-6 bps this week)
  • 5-yr: -3 bps to 3.96% (-6 bps this week)
  • 10-yr: -2 bps to 4.38% (-4 bps this week)
  • 30-yr: -1 bp to 4.89% (-3 bps this week)

• News:
  • The People's Bank of China made no changes to its one-year and five-year loan prime rates.
  • Officials from Japan's Ministry of Finance met with primary dealers to discuss a plan to reduce sales of ultra-long bonds by 10%.
  • Australia's Treasurer Chalmers is reportedly considering new taxes.
  • The Bank of England announced its latest policy decision yesterday, choosing to leave its bank rate unchanged at 4.25%, which was expected.
  • The European Central Bank highlighted the complexity of transatlantic trade in its latest Economic Bulletin, noting that nearly a third of the eurozone's goods surplus with the US is generated by American-owned firms, complicating the narrative around recent tariff disputes.
  • The European Investment Bank announced a record EUR100 billion financing ceiling for 2025 to bolster investments in European security, energy, and technological leadership.
  • China's May FDI was down 13.2% YTD (last -10.9%).
  • Japan's May National CPI was up 0.3% m/m (last 0.1%), rising 3.5% yr/yr, as expected (last 3.6%). National Core CPI was up 3.7% yr/yr (expected 3.6%; last 3.5%). 
  • South Korea's May PPI was down 0.4% m/m (last -0.2%) but up 0.3% yr/yr (last 0.8%).
  • Hong Kong's May CPI was down 0.3% m/m (last -0.1%), rising 1.9% yr/yr (expected 2.0%; last 2.0%).
  • Germany's May PPI was down 0.2% m/m (expected -0.3%; last -0.6%), falling 1.2% yr/yr, as expected (last -0.9%).
  • U.K.'s May Retail Sales were down 2.7% m/m (expected -0.5%; last 1.3%), falling 1.3% yr/yr (expected 1.7%; last 5.0%). May Core Retail Sales were down 2.8% m/m (expected -0.5%; last 1.4%), falling 1.3% yr/yr (expected 1.8%; last 5.2%). May Public Sector Net Borrowing reached GBP17.69 bln (expected GBP17.90 bln; last GBP20.05 bln).
  • France's June Business Survey fell to 96 from 97 (expected 97).
• Today's Data:
  • The Philadelphia Fed Index hit -4.0 in June (Briefing.com consensus -0.3), unchanged from May.
  • Conference Board's Leading Economic Index was down 0.1% in May (Briefing.com consensus -0.1%) while the April decrease was revised down to -1.4% from -1.0%.
• Commodities:
  • WTI crude: +0.4% to $73.83/bbl
  • Gold: -0.7% to $3385.80/ozt
  • Copper: -0.4% to $4.83/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1530
  • GBP/USD: UNCH at 1.3464
  • USD/CNH: -0.1% to 7.1793
  • USD/JPY: +0.4% to 145.98
• The Week Ahead:
  • Monday: Flash June S&P Global U.S. Manufacturing PMI (prior 52.0) and flash June S&P Global U.S. Services PMI (prior 53.7) at 9:45 ET; and May Existing Home Sales (Briefing.com consensus 3.94 mln; prior 4.00 mln) at 10:00 ET
  • Tuesday: Q1 Current Account Balance (prior -$303.9 bln) at 8:30 ET; April FHFA Housing Price Index (Briefing.com consensus 0.0%; prior -0.1%) and April S&P Case-Shiller Home Price Index (Briefing.com consensus 4.1%; prior 4.1%) at 9:00 ET; June Consumer Confidence (Briefing.com consensus 99.0; prior 98.0) at 10:00 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.6%) at 7:00 ET; May New Home Sales (Briefing.com consensus 700,000; prior 743,000) at 10:00 ET; weekly crude oil inventories (prior -11.47 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: May Durable Orders (Briefing.com consensus 6.6%; prior -6.3%), Durable Orders ex-transport (Briefing.com consensus 0.1%; prior 0.2%), Q1 GDP -- third estimate (Briefing.com consensus -0.2%; prior -0.2%), Q1 GDP Deflator -- third estimate (Briefing.com consensus 3.7%; prior 3.7%), weekly Initial Claims (Briefing.com consensus 247,000; prior 245,000), Continuing Claims (prior 1.945 mln), May advance International Trade in Goods (prior -$87.6 bln), May advance Retail Inventories (prior -0.1%), and May advance Wholesale Inventories (prior 0.0%) at 8:30 ET; May Pending Home Sales (Briefing.com consensus 0.4%; prior -6.3%) at 10:00 ET; weekly natural gas inventories (prior +95 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: May Personal Income (Briefing.com consensus 0.4%; prior 0.8%), Personal Spending (Briefing.com consensus 0.2%; prior 0.2%), PCE Prices (Briefing.com consensus 0.1%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.1%; prior 0.1%) at 8:30 ET; and final June University of Michigan Consumer Sentiment (Briefing.com consensus 60.5; prior 52.2) at 10:00 ET