Bond Market Update

Recent Losses Extended

• U.S. Treasuries began the week with modest losses across the curve, pushing yields toward their highs from last week. The cash market opened the day on a slightly lower note after a quiet start to the week in global markets. Major equity indices in Japan and South Korea hit fresh record highs, as sentiment held up well through the weekend even though President Trump called off his delegation's trip to Pakistan. However, the president said that negotiations can continue over the phone and there were reports of Iran presenting a plan to restore traffic through the Strait of Hormuz, which prevented the market from thinking that things have taken a turn for the worse. That said, crude oil crept back above $95/bbl, which kept Treasuries pressured in morning trade. The market briefly bounced off morning lows after a lukewarm $69 bln 2-yr note sale, but the entire complex faced some renewed pressure that had all tenors hitting fresh lows in the wake of a $70 bln 5-yr note offering, which met poor demand. The U.S. Treasury will cap this week's note auction rush with a $44 bln 7-yr note sale ahead of Wednesday's FOMC Decision. The U.S. Dollar Index slipped 0.1% to 98.48, staying just below its 200-day moving average (98.53).
• Yield Check:
  • 2-yr: +2 bps to 3.80%
  • 3-yr: +3 bps to 3.83%
  • 5-yr: +3 bps to 3.95%
  • 10-yr: +3 bps to 4.34%
  • 30-yr: +3 bps to 4.94%

• News:
  • Japan's Prime Minister Takaichi said that Japan has secured a stable supply of oil into next year.
  • South China Morning Post reported that the Chinese government has developed a cheaper all-iron battery for renewable energy storage.
  • Banks in the U.K. are preparing for higher taxes if Prime Minister Starmer is replaced by someone leaning farther to the left.
  • Standard & Poor's reaffirmed Greece's BBB rating with a Stable outlook while Germany's AAA rating was also affirmed.
  • China's March Industrial Profit was up 15.5% YTD (last 15.2%).
  • Japan's February Leading Index rose to 113.3 from 112.0 (expected 112.4) and Coincident Indicator was down 1.8% m/m (expected -1.6%; last 3.4%).
  • Singapore's March Industrial Production rose 4.7% m/m (last -1.2%), increasing 10.1% yr/yr (last 3.3%).
  • Germany's May GfK Consumer Climate fell to -33.3 from -28.1 (expected -30.2).
  • U.K.'s April CBI Distributive Trades Survey fell to -68 from -52 (expected -42).
• Today's Data:
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.812% (3.678%).
    • Bid-to-cover: 2.65 (2.59).
    • Indirect bid: 56.5% (57.9%).
    • Direct bid: 31.6% (30.0%). 
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.955% (3.678%).
    • Bid-to-cover: 2.33 (2.39).
    • Indirect bid: 72.3% (63.5%).
    • Direct bid: 15.0% (25.8%).
• Commodities:
  • WTI crude: +2.1% to $96.39/bbl
  • Gold: -1.0% to $4694.60/ozt
  • Copper: -0.2% to $6.02/lb
• Currencies:
  • EUR/USD: UNCH at 1.1720
  • GBP/USD: UNCH at 1.3532
  • USD/CNH: UNCH at 6.8273
  • USD/JPY: +0.1% to 159.43
• The Day Ahead:
  • 10:00 ET: February FHFA Housing Price Index (Briefing.com consensus 0.2%; prior 0.1%) and February S&P Case-Shiller Home Price Index (Briefing.com consensus 1.2%; prior 1.2%), April Consumer Confidence (Briefing.com consensus 89.2; prior 91.8)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results