Bond Market Update

Old Concerns Weigh Despite New Month 

• U.S. Treasuries started June with losses in most tenors, though the market put up a fight, finishing the session closer to the day's opening levels than session lows. Treasuries started with modest losses across the curve after the weekend featured some renewed uncertainty surrounding peace negotiations with Iran. The U.S. carried out strikes against Iran over the weekend, sending the price of oil back above $90/bbl while also weighing on Treasuries. The early losses were extended in the late morning after it was reported that Iran suspended peace negotiations with the U.S. due to Israel striking Hezbollah targets in Lebanon. The selling that followed lifted yields back to last week's highs, but a midday rebound took shape after President Trump said that Israel's hostilities toward Lebanon will stop. The rebound lifted the long bond into positive territory while 10s and shorter tenors finished the day with losses. Crude oil hit a session high just below $95/bbl before narrowing its gain while the U.S. Dollar Index rose 0.3% to 99.19, bouncing off its 50-day moving average (98.90).
• Yield Check:
  • 2-yr: +4 bps to 4.05%
  • 3-yr: +4 bps to 4.10%
  • 5-yr: +4 bps to 4.19%
  • 10-yr: +2 bps to 4.48%
  • 30-yr: UNCH at 4.99%

• News:
  • European Central Bank policymaker Schnabel lamented high energy prices while policymaker Pereira repeated that the central bank should act sooner rather than later.
  • China's May Manufacturing PMI hit 50.0 (expected 50.2; last 50.3) and Non-Manufacturing PMI hit 50.1 (expected 49.5; last 49.4). RatingDog Manufacturing PMI hit 51.8 (expected 51.4; last 52.2).
  • Japan's Q1 Capital Spending was unchanged qtr/qtr (expected 4.1%; last 6.5%) and May Manufacturing PMI hit 54.5, as expected (last 55.1).
  • South Korea's May trade surplus reached $26.95 bln (expected surplus of $24.30 bln; last surplus of $23.76 bln) as imports grew 20.8% yr/yr (expected 21.5%; last 16.7%) and exports rose 53.2% yr/yr (expected 48.4%; last 48.0%). May Manufacturing PMI hit 54.8 (last 53.6). 
  • Australia's May Manufacturing PMI hit 50.7 (expected 50.2; last 51.3). May MI Inflation Gauge was down 0.3% m/m (last 0.6%) and May ANZ Job Advertisements rose 1.8% m/m (last -0.6%). May Commodity Prices were up 16.8% yr/yr (last 15.1%).
  • India's May Manufacturing PMI hit 55.0 (expected 54.3; last 54.7).
  • Eurozone's May Manufacturing PMI hit 51.6 (expected 51.4; last 52.2). April Unemployment Rate remained at 6.3% (expected 6.2%). April Private Sector Loans rose 3.0% yr/yr, as expected (last 3.0%), and loans to nonfinancials rose 3.4% yr/yr (expected 3.1%; last 3.2%).
  • Germany's April Retail Sales were down 0.3% m/m (expected -0.4%; last -0.3%), falling 0.3% yr/yr (last 2.7%). May Manufacturing PMI hit 50.1 (expected 49.9; last 51.4).
  • U.K.'s May Nationwide HPI was down 0.6% m/m (expected -0.1%; last 0.4%) but up 1.7% yr/yr (last 3.0%). May Manufacturing PMI hit 53.9 (expected 53.7; last 53.7).
  • France's May Manufacturing PMI hit 49.7 (expected 48.9; last 52.8).
  • Italy's May Manufacturing PMI hit 52.9 (expected 52.0; last 52.1).
  • Spain's May Manufacturing PMI hit 51.2 (expected 53.7; last 51.7).
  • Swiss Q1 GDP expanded 0.7% qtr/qtr (expected 0.5%; last 0.2%), growing 0.5% yr/yr (last 1.0%). April Retail Sales were up 1.6% yr/yr (expected 0.2%; last 1.3%). May Manufacturing PMI hit 57.3 (expected 54.0; last 54.5).
• Today's Data:
  • The ISM Manufacturing Index hit 54.0% in May (Briefing.com consensus 53.1%), up from 52.7% in April. The dividing line between expansion and contraction is 50.0%, so the May figure suggests an acceleration in the rate of change in manufacturing activity compared to April.
    • The key takeaway from the report is that it continued showing some stagflationary elements for the second consecutive month, as employment remained in contraction—though at a slower rate—while the prices index only dipped slightly from its highest level since early 2022.
  • Construction spending increased 0.4% month-over-month in April (Briefing.com consensus 0.3%) after increasing a revised 0.2% (from 0.6%) in March. On a year-over-year basis, construction spending was up 0.9%.
    • The key takeaway from the report is that it included a sharp downward revision to growth rate from March (0.2%), resulting in a weak report overall. New single-family construction spending increased a solid 1.4% in April but was still down 2.9% year-over-year.
  • The S&P Global U.S. Manufacturing PMI hit 55.1 in the final reading for May, down from 55.3 in the flash reading.
• Commodities: 
  • WTI crude: +5.5% to $92.19/bbl
  • Gold: -1.7% to $4512.80/ozt
  • Copper: +2.5% to $6.55/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1631
  • GBP/USD: +0.1% to 1.3459
  • USD/CNH: UNCH at 6.7648
  • USD/JPY: +0.3% to 159.68
• The Day Ahead:
  • 10:00 ET: April Job Openings (prior 6.866 mln)