Bond Market Update

A Benefits Package

• U.S. Treasuries had the benefit of both a safe-haven trade today and a trade grounded in some increased hope that the Fed could cut rates at the July FOMC meeting. The former was driven by the U.S. strikes on three Iranian nuclear facilities over the weekend, while the latter was precipitated by Fed Governor Bowman saying she could support a rate cut in July if inflation pressures remain contained. Those pressures eased today with crude futures dropping 7.0% to $68.63/bbl, as the market saw a relatively weak military response from Iran this afternoon as a basis to conclude that it won't be moving to close the Strait of Hormuz and that it is possible there won't be a further military escalation involving the U.S. Treasuries finished off their best levels of the day but retained the bulk of their gains. The front of the curve led the way on the rate-cut hope, some of which was also priced into the fed funds futures market. According to the CME FedWatch Tool, the probability of a 25-basis point rate cut at the July FOMC meeting increased to 22.7% from 14.5% on Friday. Today's thinking will place an added premium on Fed Chair Powell's Semiannual Monetary Policy Report before the House Financial Services Committee on Tuesday.
• Yield Check:
  • 2-yr: -8 bps to 3.83%
  • 3-yr: -8 bps to 3.78%
  • 5-yr: -7 bps to 3.89%
  • 10-yr: -6 bps to 4.32%
  • 30-yr: -3 bps to 4.86%

• News:
  • President Trump ordered U.S. strikes on three Iranian nuclear facilities over the weekend and said Iran “must now make peace, If they do not, future attacks will be far greater.”
  • Qatar Air Defences intercepted a missile attack on US military base Al Udeid, according to BloombergTV
  • Iran coordinated the attacks on U.S. base in Qatar and gave officials advance warning to minimize casualties, according to NY Times
  • No deaths or injuries reported from Iranian attack on U.S. airbase in Qatar - CNN
  • President Trump does not want any more military engagement in the Middle East following Iranian response, according to CNN
  • Iranian Parliament approved a measure to close Strait of Hormuz, but final decision will be made by Iran's Supreme National Security Council, according to The Hill
  • Secretary of State Marco Rubio in interview urged Iran to pursue diplomacy and said U.S. is ready to meet with Iran, according to CBS News
  • President Trump says he prefers money for green energy tax credits gets used for something else in reconciliation bill
  • Senate parliamentarian rejects food aid cuts that were supposed to be part of reconciliation bill, according to New York Times
  • President Trump posts renewed criticism on Fed Chairman Jerome Powell; says "Maybe, just maybe, I’ll have to change my mind about firing him? But regardless, his term ends shortly!"
  • U.S. and EU getting close to deal on several non-tariff trade issues, according to The Wall Street Journal
  • South Korea's exports were up 8.3% through the first 20 days of June with chip exports jumping 21.8% year-over-year
  • Japan's flash June Manufacturing PMI 50.4 (expected 49.5; last 49.4) and flash Services PMI 51.5 (last 51.0)
  • Eurozone's flash June Manufacturing PMI 49.4 (expected 49.6; last 49.4) and flash Services PMI 50.0, as expected (last 49.7)
• Today's economic data:
  • Flash June S&P Global U.S. Manufacturing PMI (Actual 52.0; prior 52.0) and flash June S&P Global U.S. Services PMI (Actual 53.1; prior 53.7)
  • Existing home sales increased 0.8% month-over-month in May to a seasonally adjusted annual rate of 4.03 million (Briefing.com consensus 3.94 million) from an unrevised 4.00 million in April. Sales were down 0.7% from the same period a year ago.
    • The key takeaway from the report is that the inventory of existing homes for sale is rising, yet overall demand remains subdued because of affordability constraints stemming from high prices and high mortgage rates.
• Commodities:
  • WTI crude: -7.0% to $68.63/bbl
  • Gold: +0.3% to $3395.10/ozt
  • Copper: +0.4% to $4.85/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1575
  • GBP/USD: +0.6% to 1.3524
  • USD/CNH: flat at 7.1766
  • USD/JPY: flat at 146.08
• The Day Ahead:
  • 08:30 ET: Q1 Current Account Balance (prior -$303.9B)
  • 09:00 ET: April FHFA Housing Price Index (Briefing.com consensus 0.0%; prior -0.1%)
  • 09:00 ET: April S&P Case-Shiller Home Price Index (Briefing.com consensus 4.1%; prior 4.1%)
  • 10:00 ET: Fed Chair Powell's Semiannual Monetary Policy Report before House Financial Services Committee
  • 10:00 ET: June Consumer Confidence (Briefing.com consensus 99.0; prior 98.0)
  • 13:00 ET: $69 bln 2-yr note auction