Bond Market Update

 Short End Leads

• U.S. Treasuries are on track for a higher start after a quiet night in the futures market. Treasury futures held their ground through the early part of the overnight session, rising to highs once the focus shifted to action in Europe. President Trump repeated yesterday that the Iran war will be ended quickly and that Iran is eager to make a deal. There were some reports of additional tankers making it through the Strait of Hormuz, giving a small boost to sentiment. Crude oil is slipping toward $102/bbl, thanks to some overnight pressure on price and a shift in the front month contract to July. In other news, EU trade negotiator Zovko said that a deal has been made with the U.S. to avoid higher tariffs. Today's session will feature a $16 bln 20-yr bond auction at 13:00 ET. The U.S. Dollar Index is flat at 99.33.
• Yield Check:
  • 2-yr: -3 bps to 4.09%
  • 3-yr: -3 bps to 4.18%
  • 5-yr: -3 bps to 4.30%
  • 10-yr: -3 bps to 4.64%
  • 30-yr: -1 bp to 5.17%

• News:
  • Philadelphia Fed President (FOMC voter) Paulson said that a rate hike should be considered.
  • Samsung's union will launch a strike on Thursday, though management is reportedly still looking to avoid that outcome.
  • The People's Bank of China left its one-year and five-year loan prime rates at their respective 3.00% and 3.50%.
  • Japan sold 20-yr JGBs to solid demand and there was a report that a new JGB aimed at retail investors could be launched.
  • The Reserve Bank of New Zealand's mean household inflation expectations for two years out increased to 4.9% from 3.4%.
  • The U.K. is reportedly lobbying supermarkets to introduce price caps on essential times like eggs, bread, and milk.
  • European Central Bank policymaker Kocher said that a June rate hike is expected if there is no quick end to the Iran conflict.
  • Japan's May Reuters Tankan Index rose to 8 from 7.
  • Eurozone's April CPI was up 1.0% m/m (expected 1.0%; last 1.3%), rising 3.0% yr/yr (expected 3.0%; last 2.6%). April Core CPI was up 0.9% m/m (expected 0.9%; last 0.8%), rising 2.2% yr/yr (expected 2.2%; last 2.3%).
  • Germany's April PPI was up 1.2% m/m (expected 2.0%; last 2.5%), rising 1.7% yr/yr (expected 1.5%; last -0.2%).
  • U.K.'s April CPI was up 0.7% m/m (expected 0.9%; prior 0.7%), rising 2.8% yr/yr (expected 3.0%; last 3.3%). April Input PPI was up 2.4% m/m (expected 1.2%; last 4.3%), rising 7.7% yr/yr (expected 5.9%; prior 5.3%). April Output PPI was up 1.4% m/m (expected 1.0%; prior 1.4%), rising 4.0% yr/yr (expected 2.8%; prior 3.0%).
• Commodities:
  • WTI Crude: -1.7% to $102.36/bbl
  • Gold: -0.3% to $4497.90/ozt
  • Copper: +0.7% to $6.25/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1599
  • GBP/USD: UNCH at 1.3396
  • USD/CNH: -0.1% to 6.8072 
  • USD/JPY: UNCH at 159.04
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -2.3%; prior 1.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -4.31 mln)
  • 14:00 ET: April FOMC Minutes
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results