Bond Market Update

Short End Resists Intraday Pressure

• Longer-dated U.S. Treasuries recorded their third consecutive day of losses, while the short end resisted even though the market received a much hotter-than-expected PPI report for April. Treasuries followed two days of heavy selling with a mostly flat start with investors keeping an eye on the price of oil, which climbed again today before reversing. Treasuries faced some morning pressure after the PPI report revealed a 1.4% month-over-month increase in April (Briefing.com consensus 0.4%), lifting the year-over-year rate to 6.0% from 4.3%. While the report showed hot inflation at the producer level, Treasuries resisted much of the selling that followed. Morning weakness briefly lifted yields on the 10-yr note and shorter tenors past their highs from March, but a late-morning bounce returned shorter tenors to their opening levels while longer tenors finished near levels seen in immediate reaction to the PPI report. The U.S. Treasury sold $25 bln in 30-yr bonds to weak demand, but the market held its ground after the auction. The U.S. Senate confirmed Kevin Warsh's nomination to lead the Fed in a 54-45 vote. Mr. Warsh will assume the Chairman role at the end of this week. In other news, President Trump arrived in China, where he will meet with China's President Xi, so a good amount of tomorrow's news flow will focus on the meeting of the two leaders. Crude oil settled just above $101/bbl while the U.S. Dollar Index rose 0.2% to 98.53.
• Yield Check:
  • 2-yr: -1 bp to 3.99%
  • 3-yr: UNCH at 4.03%
  • 5-yr: +1 bp to 4.13%
  • 10-yr: +2 bps to 4.48%
  • 30-yr: +2 bps to 5.05%

• News:
  • The International Energy Agency warned in a report that the global oil supply will fall below demand this year due to the Iran conflict. The agency also lowered global demand and supply forecasts for the year.
  • South Korea's cabinet is holding an emergency meeting as Samsung Electronics workers threaten an 18-day strike, starting next Thursday if their compensation demands are not met.
  • Australia is cutting taxes for all taxpayers and implementing long-term reforms in its budget for 2026.
  • South Korea's KDI raised its domestic 2026 growth forecast to 2.5% from 1.9% while the inflation outlook was increased to 2.7% from 2.1%.
  • Reports from the U.K. indicate that worker unions are now joining the call for the resignation of Prime Minister Starmer after his party was dealt a humiliating defeat in local elections.
  • Japan's March adjusted Current Account surplus reached JPY3.90 trln (expected JPY2.95 trln; last JPY2.70 trln). April Bank Lending was up 5.4% yr/yr (expected 4.6%; last 4.8%) and April Economy Watchers Current Index fell to 40.8 from 42.2 (expected 41.5).
  • South Korea's April Unemployment Rate rose to 2.8% from 2.7%.
  • Australia's Q1 Wage Price Index was up 0.8% qtr/qtr, as expected (last 0.8%), rising 3.3% yr/yr, as expected (last 3.4%). Q1 Home Loans fell 4.3% qtr/qtr (last 9.4%).
  • New Zealand's Q2 Inflation Expectations accelerated to 2.5% qtr/qtr from 2.4%.
  • Eurozone's flash Q1 GDP expanded 0.1% qtr/qtr, as expected (last 0.2%), growing 0.8% yr/yr, as expected (last 1.2%). Q1 Employment Change ticked up 0.1% qtr/qtr (expected 0.0%; last 0.2%), rising 0.5% yr/yr (last 0.7%). March Industrial Production was down 2.1% yr/yr (expected -1.7%; last -0.8%).
  • Germany's April WPI was up 2.0% m/m (expected 1.7%; last 2.7%), rising 6.3% yr/yr (last 4.1%).
  • France's Q1 Unemployment Rate rose to 8.1% from 7.9% (expected 7.8%). April CPI was up 1.0% m/m, as expected (last 1.0%), rising 2.2% yr/yr, as expected (last 1.7%).
• Today's Data:
  • The producer price index for final demand surged 1.4% month-over-month in April (Briefing.com consensus: 0.4%) following an upwardly revised 0.7% increase (from 0.5%) in March. That was the largest advance since March 2022 and nearly 60% of the increase was attributed to a 1.2% advance in the index for final demand services. Excluding food and energy, the index for final demand jumped 1.0% (Briefing.com consensus: 0.3%) on the heels of an upwardly revised 0.2% increase (from 0.1%) in March. The producer price index for final demand was up 6.0% year-over-year versus 4.3% in March, while the index for final demand, excluding food and energy, was up 5.2% versus 4.0% in March.
    • The key takeaway from the report is that the surge in producer prices in April wasn't just energy-related. That surge accounted for the bulk of the 2.0% increase in the index for final demand goods, but two-thirds of the "broad-based advance" in the index for final demand services was attributed to a 2.7% increase in margins for final demand trade services.
  • Weekly crude oil inventories decreased by 4.31 mln barrels after decreasing by 2.31 mln barrels a week ago.
  • $25 bln 30-year Treasury bond auction results (prior 12-auction average):
    • High yield: 5.046% (4.795%).
    • Bid-to-cover: 2.30 (2.39).
    • Indirect bid: 66.6% (64.2%).
    • Direct bid: 21.7% (24.2%).
• Commodities:
  • WTI crude: -1.3% to $101.01/bbl
  • Gold: +0.4% to $4706.30/ozt
  • Copper: +2.1% to $6.67/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1709
  • GBP/USD: -0.1% to 1.3520
  • USD/CNH: UNCH at 6.7872
  • USD/JPY: +0.2% to 157.88
• The Day Ahead:
  • 8:30 ET: April Retail Sales (Briefing.com consensus 0.4%; prior 1.7%), Retail Sales ex-auto (Briefing.com consensus 0.4%; prior 1.9%), weekly Initial Claims (Briefing.com consensus 208,000; prior 200,000), Continuing Claims (prior 1.766 mln), April Import Prices (prior 0.8%), Import Prices ex-oil (prior 0.6%), Export Prices (prior 1.6%), and Export Prices ex-oil (prior 1.7%)
  • 10:00 ET: March Business Inventories (Briefing.com consensus 0.3%; prior 0.4%)
  • 10:30 ET: Weekly natural gas inventories (prior +63 bcf)