Bond Market Update

Tuesday Bounce Extended

• U.S. Treasuries climbed on Wednesday, making for a swift continuation of yesterday's bounce, which followed the highest settlement in the 2-yr yield since February 2025. The trading day started with solid gains that were led by longer tenors, even though the Asian session saw some improvement in sentiment after a woeful showing on Tuesday. Crude oil continued falling, adding an additional measure of support, though Treasuries had no trouble building on their gains through the first four hours of action. Longer tenors were at the forefront of today's advance, sending the 10-yr yield back below its 50-day moving average (4.439%) to its lowest settlement in nearly seven weeks while the 30-yr yield finished at its lowest level since early March, drifting back toward the midpoint of its range that has been in effect since the start of 2025. Shorter tenors also recorded solid gains today, but their yields remain not far from this year's highs given their increased sensitivity to this year's volatility in oil prices. The complex settled on highs even though the U.S. Treasury's $70 bln 5-yr note auction at 13:00 ET met underwhelming demand. Crude oil slid toward $70/bbl with levels seen prior to the U.S. military campaign in Iran looming just below while the U.S. Dollar Index rose 0.2% to 101.61, reaching its best level since May 2025. Conversely, gold and silver extended their recent weakness, falling to levels from late 2025.
• Yield Check:
  • 2-yr: -5 bps to 4.14%
  • 3-yr: -7 bps to 4.14%
  • 5-yr: -9 bps to 4.18%
  • 10-yr: -9 bps to 4.40%
  • 30-yr: -8 bps to 4.86%

• News: 
  • President Trump said that the Department of Justice will investigate major energy companies for price gouging.
  • An adviser from the People's Bank of China said that rate cuts are still possible this year.
  • MSCI extended its review of Indonesia's market classification and chose not to upgrade South Korea to developed market status due to currency-related concerns.
  • Rheinmetall has plunged to its lowest level since early 2025 after Germany canceled its plan to build six warships and purchase frigates from ThyssenKrupp instead.
  • Sweden's central bank indicated readiness to raise rates in its meeting minutes for June.
  • Japan's May Corporate Services Price Index was up 3.3% yr/yr, as expected (last 3.3%).
  • Australia's May Monthly CPI Indicator decelerated to 4.0% from 4.2% (expected 4.3%).
  • Germany's June ifo Business Climate Index rose to 85.6 from 85.0, as expected. June Current Assessment rose to 87.0 from 86.1 (expected 86.0) and June Business Expectations rose to 84.1 from 83.9 (expected 85.0).
  • Swiss June ZEW Expectations fell to -25.0 from -11.1.
• Today's Data:
  • New home sales decreased 7.3% month-over-month in May to a seasonally adjusted annual rate of 580,000 (Briefing.com consensus: 627,000) from a downwardly revised 626,000 (from 622,000) in April. The level of sales in May is the second lowest over the last 12 months. On a year-over-year basis, new home sales were down 6.8%.
    • The key takeaway from the report is that new home sales in May were pressured by affordability constraints tied to rising mortgage rates. Notably, the West region, which features the highest-priced homes, saw the biggest hit to sales month-over-month; however, there was also weakness in the more affordable South region, which is the nation's largest homebuilding market.
  • The Current Account deficit widened to $226.8 bln in Q1 (Briefing.com consensus -$237.5 bln) from a revised $221.2 bln deficit (from -$190.7 bln) in Q4. · The weekly MBA Mortgage Index rose 1.0% to follow last week's 3.8% decrease. The Refinance Index was up 3.0% while the Purchase Index was down 0.6%.
  • Weekly crude oil inventories decreased by 6.09 mln barrels after decreasing by 8.26 mln barrels a week ago.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.200% (3.795%).
    • Bid-to-cover: 2.35 (2.38).
    • Indirect bid: 61.6% (63.9%).
    • Direct bid: 25.5% (24.9%).
• Commodities:
  • WTI crude: -3.9% to $70.42/bbl
  • Gold: -3.4% to $4007.40/ozt
  • Copper: -3.3% to $5.95/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1356
  • GBP/USD: -0.3% to 1.3163
  • USD/CNH: +0.3% to 6.8139
  • USD/JPY: +0.1% to 161.75
• The Day Ahead:
  • 8:30 ET: Q1 GDP -- third estimate (Briefing.com consensus 1.6%; prior 1.6%), Q1 GDP Deflator -- third estimate (Briefing.com consensus 3.5%; prior 3.5%), May Personal Income (Briefing.com consensus 0.3%; prior 0.0%), Personal Spending (Briefing.com consensus 0.3%; prior 0.5%), PCE Prices (Briefing.com consensus 0.4%; prior 0.4%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), May Durable Orders (Briefing.com consensus -3.2%; prior 7.9%), Durable Orders ex-transport (Briefing.com consensus 0.5%; prior 1.1%), weekly Initial Claims (Briefing.com consensus 225,0000; prior 226,000), and Continuing Claims (prior 1.810)
  • 10:30 ET: Weekly natural gas inventories (prior +73 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results