Bond Market Update

Long End Leads

• U.S. Treasuries had a good day, with the long end of the curve leading the broad-based buying interest. Notably, today's gains occurred despite the CBO estimating the Senate's version of the "One Big Beautiful Bill," which is expected to get a full Senate vote late tonight or early tomorrow, will add $3.3 trillion to the nation's deficit over the next decade. Market participants instead reacted more fully to a third consecutive contraction reading for China's official manufacturing PMI in June, Canada's effort to renew trade negotiations with the U.S. by dropping its digital services tax, and reports that other trade deals, including one possibly with the EU, could be announced soon. Today's drop in rates and expectations that the Fed will cut rates perhaps as many as three times before the end of the year took a toll on the dollar. The U.S. Dollar Index was down 0.5% to 96.87, leaving it down 7.0% for the quarter.
• Yield Check:
  • 2-yr: -2 bps to 3.72%
  • 3-yr: -4 bps to 3.68%
  • 5-yr: -4 bps to 3.79%
  • 10-yr: -6 bps to 4.23%
  • 30-yr: -7 bps to 4.78%

• News:
  • Senate voted 51-49 on procedural motion to advance large reconciliation bill to a full Senate vote tonight; House expected to vote Wednesday. The bill includes extension of 2017 tax cuts, spending cuts (Medicaid and green energy spending), deregulation, energy reform, immigration reform, and a debt ceiling increase of $5 trillion
  • President Trump says he "could" extend tariff pause, but he'd rather send letters to countries letting them know what the tariff rates are. He said he will appoint "anybody but Powell" to the Fed. He would consider removing Iran sanctions if they are peaceful, according to FOX Business
  • White House Press Secretary Karoline Leavitt says President Trump will meet with his trade team this week on tariff rates ahead of July 9 deadline; also says Mr. Trump sent Fed Chairman Jerome Powell letter about why rates should be lower
  • EU floats 10% tariff pact, urges US to ease auto, steel, and pharma duties, according to Bloomberg
  • Canada removes digital services tax in effort to resume trade negotiations with U.S.
  • Atlanta Fed President Bostic (non-FOMC voter) doesn't think tariffs will be one-time price shift
  • China's Manufacturing PMI (49.7) remained in contraction for the third consecutive month
  • Large banks all pass Federal Reserve's stress test
  • President Trump suggested keeping 25% on Japanese autos, according to Bloomberg
  • FT reported that major European ports are experiencing highest congestion since the coronavirus pandemic due to low river levels and the impact of tariffs
  • China's June Manufacturing PMI 49.7 (expected 49.6; last 49.5) and Non-Manufacturing PMI 50.5 (expected 50.3; last 50.3)
• Commodities:
  • WTI crude: -0.5% to $65.10/bbl
  • Gold: +0.6% to $3307.90/ozt
  • Copper: -0.8% to $5.08/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1776
  • GBP/USD: unch at 1.3716
  • USD/CNH: -0.2% to 7.1575
  • USD/JPY: -0.4% to 144.17
• The Day Ahead:
  • 09:45 ET: June S&P Global U.S. Manufacturing PMI - FInal (prior 52.0)
  • 10:00 ET: May Construction Spending (Briefing.com consensus -0.2%; prior -0.4%)
  • 10:00 ET: June ISM Manufacturing Index (Briefing.com consensus 48.8%; prior 48.5%)
  • 10:00 ET: May JOLTS - Job Openings (prior 7.391M)