Bond Market Update

Bounce Sustained

• U.S. Treasuries padded this week's gains during an otherwise quiet Wednesday session. The trading day started with modest gains across the curve after a night that also featured gains in other sovereign debt, including longer-dated JGBs despite a weak 40-yr auction. Treasuries tried to build on their starting gains during the first few minutes of action, but they quickly found resistance near highs from last Thursday. The rest of the morning saw some light backtracking but support showed up near yesterday's closing levels, resulting in a narrow sideways range into the afternoon. Treasuries set fresh lows after today's $70 bln 5-yr note auction met weaker demand than yesterday's solid 2-yr note sale, but the last couple hours saw a return to pre-auction levels. Crude oil deepened its pullback amid ongoing hopes for an eventual peace deal with Iran while the U.S. Dollar Index rose 0.1% to 99.22.
• Yield Check:
  • 2-yr: -2 bps to 4.03%
  • 3-yr: -2 bps to 4.08%
  • 5-yr: -1 bp to 4.18%
  • 10-yr: -1 bp to 4.48%
  • 30-yr: -2 bps to 5.01%

• News:
  • The Reserve Bank of New Zealand left its official cash rate at 2.25%, as expected. Three out of seven policymaker voted for a hike, so a rate increase is expected in the coming months.
  • Samsung's unionized workers approved the wage and bonus deal offered by the company.
  • The European Central Bank's latest Financial Stability review warned that high government spending needs and high hedge fund exposure to sovereign debt could amplify financial instability.
  • European Central Bank policymaker Stournaras said that a June rate hike is likely.
  • French Finance Minister Lescure said that a budget without tax increases will be presented with the deficit target remaining below 5%.
  • China's April Industrial Profit was up 18.2% YTD (last 15.5%).
  • Japan's April Corporate Services Price Index was up 3.0% yr/yr (expected 3.3%; last 3.3%).
  • Australia's April MI Leading Index was unchanged m/m (last -0.1%). Q1 Construction Work Done was up 3.4% qtr/qtr (expected 0.8%; last 0.2%) and April CPI Indicator was up 4.2% yr/yr (expected 4.4%; last 4.6%).
  • France's May Consumer Confidence fell to 82 from 84 (expected 83).
  • Italy's March Industrial Sales rose 2.0% m/m (last 0.5%), increasing 4.4% yr/yr (last 0.5%).
  • Swiss May ZEW Expectations rose to -11.1 from -30.3.
• Today's Data:
  • The weekly MBA Mortgage Index fell 8.5% to follow last week's 2.3% decrease. The Purchase Index was down 0.4% while the Refinance Index fell 18.1%.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.182% (3.786%).
    • Bid-to-cover: 2.34 (2.38).
    • Indirect bid: 74.9% (64.2%).
    • Direct bid: 12.3% (24.9%).
• Commodities:
  • WTI crude: -5.6% to $88.60/bbl
  • Gold: -1.2% to $4448.50/ozt
  • Copper: -0.9% to $6.34/lb
• Currencies:
  • EUR/USD: UNCH at 1.1629 
  • GBP/USD: -0.1% to 1.3429
  • USD/CNH: -0.1% to 6.7788
  • USD/JPY: +0.2% to 159.50
• The Day Ahead:
  • 8:30 ET: April Personal Income (Briefing.com consensus 0.5%; prior 0.6%), Personal Spending (Briefing.com consensus 0.4%; prior 0.9%), PCE Prices (Briefing.com consensus 0.5%; prior 0.7%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), Q1 GDP -- second estimate (Briefing.com consensus 2.0%; prior 2.0%), Q1 GDP Deflator -- second estimate (Briefing.com consensus 4.5%; prior 3.6%), April Durable Orders (Briefing.com consensus 1.7%; prior 0.8%), Durable Orders ex-transport (Briefing.com consensus 0.5%; prior 0.9%), weekly Initial Claims (Briefing.com consensus 214,000; prior 209,000), and Continuing Claims (prior 1.782 mln)
  • 10:00 ET: April New Home Sales (prior 682,000)
  • 10:30 ET: Weekly natural gas inventories (prior +101 bcf)
  • 12:00 ET: Weekly crude oil inventories (prior -7.863 mln)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results