Bond Market Update

Data Recon

• The ISM Services PMI fell to 49.9% in May (Briefing.com consensus 52.0%) from 51.6% in April. The dividing line between expansion and contraction is 50.0%, so the May reading reflects services sector activity pivoting to contraction from growth in the prior month. This is only the fourth time in the last 60 months that the Services PMI has been below 50.0%.
  • The key takeaway from the report is that it signaled a worrying mix of a contraction in growth for the largest economic sector and a continued increase in prices. That will be interpreted as a stagflation report (even thogh the employment index tipped back into an expansion mode). In any case, the overarching message of the report is that growth has slowed amid all the tariff uncertainty.
    • The Business Activity/Production Index dropped to 50.0% from 53.7%.
    • The New Orders Index decreased to 46.4% from 52.3%.
    • The Employment Index increased to 50.7% from 49.0%.
    • The Prices Index climbed to 68.7% from 65.1%, the highest since November 2022.
    • The Supplier Deliveries Index increased to 52.5% from 51.3%.
    • The Backlog of Orders Index fell to 43.4% from 48.0%.
• Yield check:
  • 2-yr: -7 bps to 3.89%
  • 3-yr: -7 bps to 3.85%
  • 5-yr: -7 bps to 3.85%
  • 10-yr: -8 bps to 4.38%
  • 30-yr: -7 bps to 4.91%