Bond Market Update

Defensive Start to New Week

• U.S. Treasuries started the week on a lower note with the belly leading a Monday slide that lifted yields back to levels from last Tuesday. Treasuries faced pressure from the start after markets opened on Sunday night with some renewed upward pressure on the price of oil amid reports of little progress made in peace negotiations with Iran. Later in the day, President Trump complained about a disappointing proposal from Iran and there was speculation that the mission to escort ships through the Strait of Hormuz could be resumed. Treasuries widened their losses as the day went on, following the price of oil, which made another intraday push toward $100/bbl before settling near $98/bbl. The U.S. Treasury kicked off this week's note auction slate with a weak sale of $58 bln in 3-yr notes ahead of tomorrow's $42 bln 10-yr note auction. Tomorrow will also bring the April CPI report (Briefing.com consensus 0.6%; prior 0.9%), which will be watched closely to see if oil drove another acceleration in the yr/yr growth rate (3.3% in April). The U.S. Dollar Index edged up 0.1% to 97.95.
• Yield Check:
  • 2-yr: +6 bps to 3.95%
  • 3-yr: +5 bps to 3.97%
  • 5-yr: +6 bps to 4.07%
  • 10-yr: +5 bps to 4.41%
  • 30-yr: +4 bps to 4.99%

• News:
  • 60 Labour MPs in the U.K. have indicated their opposition to Prime Minister Starmer keeping his job. A vote of no-confidence can be triggered if 80 Labour MPs support the motion.
  • President Trump is putting together a team of corporate executives to join him on this week's trip to China.
  • Preparations are underway for President Trump's visit to Beijing later this week. Treasury Secretary Bessent will visit Japan and South Korea over the next couple days ahead of President Trump's trip to China.
  • South Korea's exports through the first ten days of May were up 43.7% yr/yr with chip exports spiking 149.8%.
  • China's April trade surplus reached $84.80 bln (expected surplus of $83.10 bln; last surplus of $51.13 bln) as imports grew 25.3% yr/yr (expected 15.2%; last 27.8%) and exports rose 14.1% yr/yr (expected 7.9%; last 2.5%). April CPI was up 0.3% m/m (expected -0.1%; last -0.7%), rising 1.2% yr/yr (expected 0.9%; last 1.0%). April PPI was up 2.8% yr/yr (expected 1.7%; last 0.5%).
  • Australia's March Building Approvals fell 10.5% m/m, as expected (last 31.0%), rising 9.0% yr/yr, as expected (last 16.1%). March Private House Approvals were up 0.9% m/m, as expected (last 2.0%).
• Today's Data:
  • Existing home sales increased 0.2% month-over-month in April to a seasonally adjusted annual rate of 4.02 million (Briefing.com consensus: 4.05 million) from an upwardly revised 4.01 million (from 3.98 million) in March. Sales were unchanged on a year-over-year basis.
    • The key takeaway from the report is that affordability conditions improved, with mortgage rates lower than a year ago and average income gains exceeding home price gains, yet overall sales activity remained tepid. The exact reason why is hard to pinpoint. A range of factors could be pertinent, from tight supply and not being able to find the right home to a bet that mortgage rates will come down more or to fraying confidence in job security.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.965% (3.679%).
    • Bid-to-cover: 2.54 (2.60).
    • Indirect bid: 63.0% (57.9%).
    • Direct bid: 20.1% (30.1%).
• Commodities:
  • WTI crude: +2.8% to $98.07/bbl
  • Gold: -0.1% to $4727.70/ozt
  • Copper: +2.5% to $6.46/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1777
  • GBP/USD: UNCH at 1.3629
  • USD/CNH: UNCH at 6.7928
  • USD/JPY: +0.4% to 157.21
• The Day Ahead:
  • 6:00 ET April NFIB Small Business Optimism (Briefing.com consensus 96.1; prior 95.8)
  • 8:30 ET: April CPI (Briefing.com consensus 0.6%; prior 0.9%) and Core CPI (Briefing.com consensus 0.4%; prior 0.2%)
  • 14:00 ET: April Treasury Budget (Briefing.com consensus $202.5 bln; prior -$164.1 bln)
• Treasury Auctions:
  • 13:00 ET: $42 bln 10-yr Treasury note auction results