Bond Market Update

Retracing Lost Ground

• U.S. Treasuries have effectively reclaimed the ground that they lost yesterday, catalyzed by oil prices sliding on the latest headlines touting a ceasefire agreement between Israel and Lebanon and the potential for a deal with Iran happening this weekend. Another tailwind is the follow-through selling pressure seen in the tech space in the wake of earnings reports from Broadcom (AVGO), CrowdStrike (CRWD), and Ciena (CIEN), all of which have been greeted with a sell-the-news response. That reaction has stirred concerns about a potentially larger pullback for the stock market after its huge run, which in turn is driving some rotational safe-haven interest that is benefitting Treasuries.
• Yield Check:
  • 2-yr: -5 bps to 4.04%
  • 3-yr: -5 bps to 4.09%
  • 5-yr: -5 bps to 4.17%
  • 10-yr: -3 bps to 4.46%
  • 30-yr: -2 bps to 4.97%

• News:
  • President Trump told advisors he will not resume all-out war with Iran unless additional U.S. troops are killed. WSJ
  • The House passes a resolution to end hostilities in Iran, but the vote is largely symbolic because there is not enough support to override a presidential veto. NBC News
  • President Trump says the Iran deal could happen this weekend. USA Today
  • State Department says Israel and Lebanon agreed to the implementation of a ceasefire; the ceasefire is contingent on a complete cessation of Hezbollah fire and the evacuation of all Hezbollah operatives from the South Litani Sector
  • Senate advances $70 bln funding bill for immigration enforcement agencies through 2029. Final passage expected later this week. The Hill
  • BOJ Governor Ueda, in a speech, spoke of inflation risks, which in turn increased speculation that the central bank will increase its policy rate this month
  • Japan and South Korea digested chatter about potential intervention to support weakening currencies
  • Construction PMI readings for May for major European countries were improved from last month but still below 50.0, which is the demarcation line between expansion and contraction.
• Commodities: 
  • WTI crude: -2.2% to $93.88/bbl
  • Gold: +1.0% to $4512.20/ozt
  • Copper: +0.3% to $6.52/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1643
  • GBP/USD: +0.3% to 1.3460
  • USD/CNH: -0.1% to 6.7725
  • USD/JPY: -0.1% to 159.80
• The Day Ahead:
  • 08:30 ET: Q1 Productivity (Briefing.com consensus: 0.8%; prior 0.8%) and Unit Labor Costs (Briefing.com consensus: 2.3%; prior 2.3%) - Revised
  • 08:30 ET: Weekly Initial Jobless Claims (Briefing.com consensus: 216,000; prior 215,000) and Continuing Jobless Claims (prior 1786K)
  • 08:30 ET: Richmond Fed President Barkin (non-FOMC voter)
  • 10:00 ET: Fed Governor Bowman (FOMC voter)
  • 10:30 ET: EIA Natural Gas Inventories (prior +92 bcf)
  • 13:00 ET: Kansas City Fed President Schmid (non-FOMC voter)