Bond Market Update

Longer Tenors Overcome Weak Start

• U.S. Treasuries endured some volatility on Thursday, but 10s and 30s ultimately managed an extension of their midweek gains while shorter tenors recovered some of their losses but could not avoid a lower finish. The market faced pressure from the start after an overnight rebound in the price of oil, which overshadowed a big batch of economic data that included weak flash PMI readings from major European economies. Treasuries spent the morning in a sideways range near their starting levels, but midday action saw a bounce that lifted 10s and 30s into positive territory as oil slid back below $100/bbl. These moves were owed to speculation that a final draft of a peace deal between the U.S. and Iran could be made public soon. Treasuries finished near session highs with the 30-yr yield ending at a one-week low. Meanwhile, crude oil fell past its 50-day moving average (98.54) to a two-week low. The U.S. Dollar Index touched its best level in nearly seven weeks before narrowing its gain to 0.2% at 99.25.
• Yield Check:
  • 2-yr: +5 bps to 4.09%
  • 3-yr: +4 bps to 4.15%
  • 5-yr: +3 bps to 4.26%
  • 10-yr: +1 bp to 4.59%
  • 30-yr: UNCH at 5.11%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was increased to 4.3% from 4.0% in the previous estimate.
  • Incoming Fed Chairman Warsh will be sworn in tomorrow.
  • Japan's extra budget is expected to reach JPY3 trillion, but Prime Minister Takaichi has not confirmed that amount yet.
  • Bank Indonesia raised its policy rate by 50 basis points to 5.25% against expectations for a smaller increase.
  • European Central Bank policymaker Rehn said that a rate hike may be needed to preserve credibility.
  • Japan's flash May Manufacturing PMI hit 54.5, as expected (last 55.1) and flash Services PMI hit 50.0 (last 51.0). April trade surplus reached JPY240 bln (expected deficit of JPY230 bln; last surplus of JPY90 bln) as imports grew 9.7% yr/yr (expected 8.3%; last 10.9%) and exports rose 14.8% yr/yr (expected 9.3%; last 11.5%). March Core Machinery Orders were down 9.4% m/m (expected -7.7%; last 13.6%) but up 5.9% yr/yr (expected 4.5%; last 24.7%).
  • South Korea's April PPI was up 2.5% m/m (last 1.7%), rising 6.9% yr/yr (last 4.1%).
  • Hong Kong's April CPI was down 0.1% m/m (last 0.0%), rising 1.7% yr/yr (last 1.7%).
  • Australia's flash May Manufacturing PMI 50.2 (last 51.3) and flash Services PMI hit 47.7 (last 50.7). April Employment decreased by 18,600 (expected 16,700; last 23,300) and full Employment Change decreased by 10,700 (last 63,400). April Unemployment Rate rose to 4.5% from 4.3% (expected 4.3%) and April Participation Rate dipped to 66.7% from 66.8% (expected 66.8%). April Credit Card Spending was up 2.9% yr/yr (last 2.1%).
  • New Zealand's April trade surplus reached NZD1.92 bln (expected NZD980 mln; last NZD430 mln).
  • India's flash May Manufacturing PMI hit 54.3 (last 54.7) and flash Services PMI hit 58.9 (last 58.8).
  • Eurozone's flash May Manufacturing PMI hit 51.4 (expected 51.7; last 52.2) and flash Services PMI hit 46.4 (expected 47.8; last 47.6). March Current Account surplus reached EUR14.9 bln (expected EUR26.3 bln; last EUR25.6 bln). Q1 Labor Cost Index was up 3.3% yr/yr (last 3.3%) and March Construction Output was up 0.78% m/m (last -0.77%).
  • Germany's flash May Manufacturing PMI hit 49.9 (expected 51.0; last 51.4) and flash Services PMI hit 47.8 (expected 47.1; last 46.9).
  • U.K.'s flash May Manufacturing PMI hit 53.7 (expected 52.9; last 53.7) and flash Services PMI hit 47.9 (expected 51.7; last 52.7).
  • France's flash May Manufacturing PMI hit 48.9 (expected 52.1; last 52.8) and flash Services PMI hit 42.9 (expected 46.6; last 46.5).
  • Swiss Q1 Industrial Production was down 7.1% yr/yr (expected 0.5%; last -0.4%).
• Today's Data:
  • Initial jobless claims for the week ending May 16 decreased by 3,000 to 209,000 (Briefing.com consensus: 210,000), while continuing jobless claims for the week ending May 9 were unchanged from the prior week at 1.782 million.
    • The key takeaway from the report is that there is nothing to see here, meaning there is nothing in these latest numbers that would suggest there has been a sea change in a labor market environment that remains characterized by low firing and low hiring activity.
  • Housing starts decreased 2.8% month-over-month in April to a seasonally adjusted annual rate of 1.465 million units (Briefing.com consensus: 1.420 million). Building permits rose 5.8% month-over-month to a seasonally adjusted annual rate of 1.442 million (Briefing.com consensus: 1.380 million).
    • The key takeaway from the report is that there was broad-based weakness across all regions for both single-family starts and single-family building permits, underscoring the headwind posed for builders by rising costs for financing, materials, and labor.
  • The Philadelphia Fed Index fell from 26.7 in April to -0.4 in May (Briefing.com consensus: 15.5). The dividing line between expansion and contraction for this survey is 0.0, so the May result reflects a slight contraction in activity versus April.
    • The key takeaway from the report, though, is that the diffusion index for future general activity climbed 12 points to 53.2, which is the highest reading since June 2021 and a sign that manufacturers are expecting better activity to follow in the next six months.
  • The S&P Global U.S. Manufacturing PMI hit 55.3 in the flash reading for May, up from 54.5 in April.
  • The S&P Global U.S. Services PMI hit 50.9 in the flash reading for May, down from 51.0 in April.
  • Weekly natural gas inventories increased by 101 bcf after increasing by 85 bcf a week ago.
• Commodities:
  • WTI crude: -2.0% to $96.28/bbl
  • Gold: +0.2% to $4543.40/ozt
  • Copper: -0.6% to $6.29/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1615
  • GBP/USD: UNCH at 1.3432
  • USD/CNH: UNCH at 6.7989
  • USD/JPY: +0.1% to 159.04
• The Day Ahead:
  • 10:00 ET: Final May University of Michigan Consumer Sentiment (Briefing.com consensus 48.2; prior 48.2) and April Leading Index (Briefing.com consensus -0.3%; prior -0.6%)