Bond Market Update

Lifted by Peace Hopes

• U.S. Treasuries began the holiday-shortened week on a firmly higher note, encouraged by a pullback in the price of oil, which resulted from more indications that a peace deal with Iran is likely be finalized soon. Treasuries marked session highs during the opening hour of trade after a night that saw a mixed showing from equity markets that showed strength yesterday, which was somewhat masked by various holiday closures in Hong Kong, South Korea, Switzerland, U.K., and the U.S. Global investors paid more attention to indications of a potential peace deal while looking past more concerning headlines like reports of defensive strikes being carried out by the U.S. military. Treasuries backpedaled from their starting highs in morning trade, but the shallow pullback found support once the 5-yr note revisited its high from Friday in the late morning. Today's economic data showed a dip in Consumer Confidence for May (to 93.1 from 93.8) while the U.S. Treasury sold $69 bln in 2-yr notes to good demand. Crude oil briefly dipped below $90/bbl before narrowing today's loss to about $2/bbl while the U.S. Dollar Index slipped 0.1% to 99.18.
• Yield Check:
  • 2-yr: -7 bps to 4.05%
  • 3-yr: -7 bps to 4.10%
  • 5-yr: -7 bps to 4.18%
  • 10-yr: -7 bps to 4.49%
  • 30-yr: -4 bps to 5.03%

• News:
  • Taiwan's equity market overtook India's as the fifth largest in the world, thanks to support from Taiwan Semiconductor Manufacturing.
  • Sri Lanka's central bank raised its policy rate by 100 basis points to 8.75% due to hot inflation.
  • European Central Bank policymaker Villeroy de Galhau said that second-round effects of inflation have not appeared yet while policymaker Schnabel said that a rate hike should be made in June.
  • Bank of Israel lowered its policy rate by 25 bps to 3.75%, as expected.
  • The U.K. is reportedly looking to join EU's EUR4 bln investment fund for startups.
  • Japan's March BoJ Core CPI was up 2.8% yr/yr (expected 1.7%; last 2.5%). March Leading Index rose to 114.0 from 113.2 (expected 114.5) and Coincident Indicator was up 0.2% m/m (expected 0.3%; last -1.7%).
  • Singapore's April Industrial Production rose 5.8% m/m (expected 1.5%; last 3.5%), jumping 17.6% yr/yr (expected 12.0%; last 9.2%).
  • U.K.'s May CBI Distributive Trades Survey rose to -46 from -68 (expected -52).
  • Spain's April PPI was up 8.3% yr/yr (last 3.4%).
• Today's Data:
  • The Conference Board's Consumer Confidence Index slipped to 93.1 in May (Briefing.com consensus: 92.0) from an upwardly revised 93.8 (from 92.8) in April. In the same period a year ago, the index stood at 98.4.
    • The key takeaway from the report is that inflation pressures had consumers feeling less optimistic about current conditions; however, those same pressures did not squash expectations for better conditions six months from now.
  • The FHFA Housing Price Index was up 0.1% in March (Briefing.com consensus 0.1%) after decreasing a revised 0.1% (from 0.0%) in February.
  • The S&P Case-Shiller Home Price Index was up 0.8% year-over-year in March (Briefing.com consensus 1.0%) after being up 0.9% in February.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.071% (3.680%).
    • Bid-to-cover: 2.64 (2.60).
    • Indirect bid: 57.6% (57.9%).
    • Direct bid: 30.1% (29.6%).
• Commodities:
  • WTI crude: -3.0% to $93.89/bbl
  • Gold: -0.6% to $4501.40/ozt
  • Copper: +0.3% to $6.40/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1629
  • GBP/USD: -0.4% to 1.3444
  • USD/CNH: +0.1% to 6.7860
  • USD/JPY: +0.3% to 159.33
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.3%)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results