Bond Market Update

Buyers Emerge

• U.S. Treasuries had a bout of weakness early in the session, yet buyers emerged again after the release of a weaker-than-expected new home sales report for May. They were also motivated by the Fed confirming a proposal to modify the supplementary leverage ratio for GSIBs, which, if adopted, is expected to be a support for Treasuries. The front of the curve continued to get pushed, too, by burgeoning hopes that the Fed could find a reason to cut rates at the July FOMC meeting if inflation pressures remain contained. Fed Chair Powell, for his part, didn't say anything consequential on the rate cut front before the Senate Banking Committee today, but it is worth noting that the probability of a 25-basis point rate cut at the July FOMC meeting is up to 24.8% versus 12.5% a week ago, according to the CME FedWatch Tool. Separately, the $70 billion 5-yr note auction was met with okay, but not strong, demand.
• Yield Check:
  • 2-yr: -3 bps to 3.78%
  • 3-yr: -2 bps to 3.74%
  • 5-yr: -2 bps to 3.84%
  • 10-yr: -1 bp to 4.29%
  • 30-yr: unch at 4.84%

• News:
  • Some House conservatives are against the Senate's version of the reconciliation bill because they want larger spending cuts, according to New York Times
  • Fed Chair Powell appeared before Senate Banking Committee for day two of semiannual monetary policy report; nothing consequential said during that appearance
  • Israeli intelligence says U.S. strikes caused "very significant" damage to Iran's nuclear facilities and are perplexed by leaked reports that suggested otherwise, according to Axios
  • President Trump will likely include tariffs in any trade deal with Canada, according to The Wall Street Journal
  • President Trump says he is with NATO "all the way" as leaders finalize his plan to spend 5% of GDP on defense, according to Bloomberg
  • Senator Ron Johnson (R-WI) not ready to support large reconciliation bill, but says President Trump is helping him get to "yes", according to Politico
  • Fed confirms proposal to modify bank capital rule
  • FHFA Director Bill Pulte says "After significant studying, and in keeping with President Trump’s vision to make the United States the crypto capital of the world, today I ordered the Great Fannie Mae (FNMA) and Freddie Mac (FMCC) to prepare their businesses to count cryptocurrency as an asset for a mortgage"
  • China's Premier Li said that his country will transition from a major manufacturing power to a big consumer market
  • U.S. and Mexico consider import quotas related to the steel trade deal, according to Bloomberg
  • Bank of Japan policymaker Tamura is becoming a more vocal dissenter, calling on the central bank to "boldly proceed with adjustment" to policy
  • $70 billion 5-yr note auction results at 1:00 p.m. ET
• Today's data:
  • New home sales declined 13.7% month-over-month in May to a seasonally adjusted annual rate of 623,000 units (Briefing.com consensus 700,000) from a downwardly revised 722,000 (from 743,000) in April. That was the weakest pace of sales since October 2024. On a year-over-year basis, new home sales were down 6.3%.
    • The key takeaway from the report is that there is an ample supply of new homes for sale, yet overall sales were weak in May, with high prices and high mortgage rates crimping demand.
  • MBA Mortgage Applications Index +1.1% wk/wk, with refinance applications up 3% and purchase applications down 0.4%.
  • THe $70 bln 5-yr note auction saw a high yield of 3.879% slightly tailed the when-issued yield of 3.874%
• Commodities:
  • WTI crude: +0.7% to $64.88/bbl
  • Gold: +0.2% to $3342.80/ozt
  • Copper: +2.1% to $4.97/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1661
  • GBP/USD: +0.3% to 1.3665
  • USD/CNH: +0.1% to 7.1719
  • USD/JPY: +0.2% to 145.15
• The Day Ahead:
  • 08:30 ET: Q1 GDP - Third Estimate (Briefing.com consensus -0.2%; prior -0.2%) and Q1 GDP Deflator - Third Estimate (Briefing.com consensus 3.7%; prior 3.7%)
  • 08:30 ET: May Durable Goods Orders (Briefing.com consensus 6.6%; prior -6.3%) and Durable Goods, Ex-Transportation (Briefing.com consensus 0.1%; prior 0.2%)
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus 247K; prior 245K) and COntinuing Jobless Claims (prior 1945K)
  • 08:30 ET: May Adv. Intl. Trade in Goods (prior -$87.6B), Retail Inventories (prior -0.1%), and Wholesale Inventories (prior 0.0%)
  • 09:00 ET: Cleveland Fed President Beth Hammack (non-FOMC voter)
  • 10:00 ET: May Pending Home Sales (Briefing.com consensus 0.4%; prior -6.3%)
  • 10:30 ET: EIA Natural Gas Inventories (prior +95 bcf)
  • 13:00 ET: $44 bln 7-yr note auction