Bond Market Update

Quiet Start to May

• U.S. Treasuries started May on a quiet note, largely thanks to Labor Day closures that significantly reduced the participation of international investors on Friday. The trading day started with slight relative strength in longer tenors, which persisted into the close. The market briefly pushed above its starting levels in mid-morning trade, but that move quickly found resistance, returning all tenors into their opening range, where they remained until the close. A busy week of economic data ended with just a small batch today, which was headlined by the ISM Manufacturing Index for April (52.7%; Briefing.com consensus 53.1%). That report showed no change in the pace of expansion compared to March while the final reading of the S&P Global U.S. Manufacturing PMI for April came in at 54.5, up from 52.3 in March. The long bond finished a bit ahead, continuing this week's outperformance, though its yield is just three basis points below its March high while yields on shorter tenors are 10-15 basis points below their respective highs from March. Crude oil continued yesterday's reversal, falling toward $100/bbl, though it still gained almost $7.50/bbl for the week, while the U.S. Dollar Index rose 0.1% to 98.16, narrowing this week's loss to 0.4%.
• Yield Check:
  • 2-yr: +1 bp to 3.89% (+11 bps this week)
  • 3-yr: UNCH at 3.91% (+11 bps this week)
  • 5-yr: UNCH at 4.02% (+10 bps this week)
  • 10-yr: -1 bp to 4.38% (+7 bps this week)
  • 30-yr: -2 bps to 4.97% (+5 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was lowered to 3.5% from 3.7% in the previous estimate.
  • President Trump said that the tariff on auto and truck imports from the EU will be increased to 25%.
  • A bipartisan congressional delegation will visit China this weekend ahead of President Trump's planned trip to Beijing later this month.
  • Taiwan's Q1 GDP grew 13.7%, a pace not seen since 1987.
  • Japanese shipper Mitsui expects that traffic through the Strait of Hormuz will normalize in the next couple months.
  • Expectations for up to two rate hikes from the European Central Bank are solidifying while the Bank of England is seen as likely to announce a rate hike by July, followed by another one in September.
  • Japan's April Tokyo CPI was up 1.5% yr/yr (last 1.4%) and Tokyo Core CPI was also up 1.5% yr/yr (expected 1.8%; last 1.7%). April Manufacturing PMI hit 55.1 (expected 54.9; last 51.6).
  • South Korea's April trade surplus reached $23.77 bln (expected surplus of $23.00 bln; last surplus of $26.24 bln) as imports jumped 16.7% yr/yr (expected 14.5%; last 13.2%) and exports soared 48.0% yr/yr (expected 45.3%; last 49.2%).
  • Australia's April Manufacturing PMI hit 51.3 (expected 51.0; last 49.8). Q1 PPI was up 0.4% qtr/qtr (expected 0.9%; last 0.8%), rising 3.0% yr/yr (last 3.5%). April Commodity Prices rose 15.7% yr/yr (last 12.7%).
  • New Zealand's March Building Consents were down 1.3% m/m (last 2.8%).
  • U.K.'s April Nationwide HPI was up 0.4% m/m (expected -0.3%; last 0.9%), rising 3.0% yr/yr (expected 2.2%; last 2.2%). April Manufacturing hit PMI 53.7 (expected 53.6; last 51.0). March Mortgage Lending reached GBP6.15 bln (expected GBP4.20 bln; last GBP5.22 bln) and March Net Lending to Individuals reached GBP8.000 bln (expected GBP5.900 bln; last GBP6.800 bln).
  • Swiss March Retail Sales rose 0.5% yr/yr (expected 0.6%; last 0.4%).
• Today's Data:
  • The ISM Manufacturing Index checked in at 52.7% for April (Briefing.com consensus: 53.1%), unchanged from March. The dividing line between expansion and contraction is 50.0%, so the April figure suggests the rate of change in manufacturing activity in April was the same as in March.
    • The key takeaway from the report is that it had some stagflation aspects for the manufacturing sector, namely low growth, a further contraction in employment, and a stark increase in the prices index, which has risen 25.6 percentage points in the last three months.
  • The S&P Global U.S. Manufacturing PMI hit 54.5 in the final reading for April, up from 54.0 in the flash reading and up from 52.3 in March.
• Commodities:
  • WTI crude: -3.2% to $101.84/bbl
  • Gold: +0.3% to $4643.40/ozt
  • Copper: +0.2% to $5.99/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1725
  • GBP/USD: -0.2% to 1.3581
  • USD/CNH: UNCH at 6.8307
  • USD/JPY: +0.3% to 157.04
• The Week Ahead:
  • Monday: March Factory Orders (Briefing.com consensus 0.5%; prior 0.0%) at 10:00 ET; Treasury Quarterly Refunding Financing Estimates at 15:00 ET
  • Tuesday: March Trade Balance (Briefing.com consensus -$60.3 bln; prior -$57.3 bln) at 8:30 ET; final April S&P Global U.S. Services PMI (prior 51.3) at 9:45 ET; April ISM Non-Manufacturing Index (Briefing.com consensus 53.9%; prior 54.0%), February New Home Sales (prior 587,000), March New Home Sales (Briefing.com consensus 654,000; prior NA), and March Job Openings (prior 6.882 mln) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -1.6%) at 7:00 ET; April ADP Employment Change (Briefing.com consensus 79,000; prior 62,000) at 8:15 ET; Treasury Quarterly Refunding Announcement at 8:30 ET; and weekly crude oil inventories (prior -6.234 mln) at 10:30 ET
  • Thursday: Preliminary Q1 Productivity (Briefing.com consensus 1.8%; prior 1.8%) and preliminary Q1 Unit Labor Costs (Briefing.com consensus 2.7%; prior 4.4%), weekly Initial Claims (Briefing.com consensus 205,000; prior 189,000), and Continuing Claims (prior 1.785 mln) at 8:30 ET; February Construction Spending (Briefing.com consensus 0.2%; prior -0.3%) and March Construction Spending (Briefing.com consensus 0.4%; prior NA) at 10:00 ET; weekly natural gas inventories (prior +79 bcf) at 10:30 ET; and March Consumer Credit (Briefing.com consensus $12.5 bln; prior $9.5 bln) at 15:00 ET
  • Friday: April Nonfarm Payrolls (Briefing.com consensus 67,000; prior 178,000), Nonfarm Private Payrolls (Briefing.com consensus 60,000; prior 186,000), April Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2) at 8:30 ET; March Wholesale Inventories (Briefing.com consensus 1.4%; prior 0.8%) and preliminary May University of Michigan Consumer Sentiment (Briefing.com consensus 50.5; prior 49.8) at 10:00 ET