Bond Market Update

Pressured by Rising Rate Hike Expectations

• U.S. Treasuries finished the week with sharp losses in most tenors, sending the 2-yr yield to a fresh closing high for the year while yields in the belly finished at two-week highs. The long bond outperformed, but still finished in the red, sending the 30-yr yield to its highest close in over a week. The trading day started in flat fashion after a night that saw a mixed showing from global equities and sovereign debt. Treasuries faced heavy selling in immediate reaction to the Employment Situation report for May (172,000; Briefing.com consensus 96,000), which beat headline expectations by a wide margin. The report had some disappointing elements, like an uptick in long-term unemployment, but it was good enough to put additional upward pressure on rate hike expectations. As a result, the market sees the potential for a rate hike as early as October with growing confidence that at least one hike will be announced before the end of the year. Treasuries saw the bulk of today's selling in early trade while the rest of the session featured some divergence, as the long bond recovered about half of its morning loss while shorter tenors settled closer to lows with the 2-yr yield recording its highest settlement since February 2025. Crude oil fell toward $90/bbl but offered no meaningful support to stocks or Treasuries. Oil narrowed this week's gain to about $3/bbl while the U.S. Dollar Index rose 0.7% to 100.05, gaining 1.2% for the week.
• Yield Check:
  • 2-yr: +11 bps to 4.16% (+16 bps this week)
  • 3-yr: +11 bps to 4.21% (+17 bps this week)
  • 5-yr: +9 bps to 4.28% (+14 bp this week)
  • 10-yr: +6 bps to 4.54% (+9 bps this week)
  • 30-yr: +2 bps to 5.00% (+2 bps this week)

• News:
  • South Korea's President Lee will visit France during the G-7 summit between June 15 and 17.
  • Indonesia will be exempt from some U.S. tariffs, according to its Economic Ministry.
  • The Reserve Bank of India left its policy rate at 5.25%, as expected, and announced that foreign institutional investors will be exempt from capital gains taxes on sales or transfer of government securities.
  • The market remains all but certain that the European Central Bank will announce a 25-basis point rate hike on Thursday with another hike expected later this year.
  • France's transportation minister said that there should be no concerns about jet fuel or gasoline supply levels during the summer.
  • Ukraine's president sent a letter to Russia's leader, proposing a bilateral meeting to end the war.
  • Japan's April Household Spending was up 1.6% m/m (expected 0.8%; last -1.3%) but down -0.5% yr/yr (expected -1.5%; last -2.9%). April Overall Wage Income rose 3.5% yr/yr (expected 3.1%; last 3.1%), and Overtime Pay was up 4.2% yr/yr (expected 3.2%; last 3.1%). April Leading Index rose to 115.9 from 114.0 (expected 114.4) and Coincident Indicator was up 1.1% m/m (expected -1.7%; last 0.3%).
  • South Korea's April Current Account reached surplus $28.29 bln (last surplus of $37.93 bln).
  • Singapore's April Retail Sales were up 0.3% m/m (last 3.4%), rising 5.4% yr/yr (last 4.6%).
  • India's Q4 GDP expanded 7.8% (expected 7.2%; last 7.8%).
  • Eurozone's Q1 GDP contracted 0.2% qtr/qtr (expected 0.1%; last 0.1%) but was up 0.3% yr/yr (expected 0.8%; last 1.2%). Q1 Employment Change was up 0.1% qtr/qtr, as expected (last 0.2%), rising 0.5% yr/yr, as expected (last 0.7%).
  • U.K.'s May Halifax House Price Index was down 0.1% m/m (expected 0.0%; last -0.1%) but up 0.5% yr/yr (expected 1.0%; last 0.4%).
  • France's April Industrial Production was up 0.1% m/m (expected -0.2%; last 1.4%). April trade deficit reached EUR5.6 bln (expected deficit of EUR6.2 bln; last deficit of EUR6.4 bln) and April Current Account deficit reached EUR200 mln (last deficit of EUR900 mln).
  • Italy's April Retail Sales were unchanged m/m (expected 0.4%; last 0.8%), rising 1.6% yr/yr (last 3.8%).
• Today's Data:
  • May nonfarm payrolls increased by 172,000 (Briefing.com consensus: 96,000). The 3-month average for total nonfarm payrolls increased to 188,000 from 79,000. April nonfarm payrolls revised to 179,000 from 115,000. March nonfarm payrolls revised to 214,000 from 185,000.
    • May private sector payrolls increased by 120,000 (Briefing.com consensus: 89,000). April private sector payrolls revised to 177,000 from 123,000. March private sector payrolls revised to 202,000 from 190,000.
    • May unemployment rate was 4.3% (Briefing.com consensus: 4.3%) versus 4.3% in April. Persons unemployed for 27 weeks or more accounted for 27.5% of the unemployed versus 25.3% in April. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 8.1% from 8.2% in April.
    • May average hourly earnings were up 0.3% (Briefing.com consensus: 0.3%) on the heels of a 0.2% increase in April. Over the last 12 months, average hourly earnings have risen 3.4% versus 3.6% for the 12 months ending in April.
    • The average workweek in May was 34.3 hours (Briefing.com consensus: 34.3) versus 34.3 hours in April. The manufacturing workweek was unchanged at 40.4 hours. Factory overtime edged up to 3.1 hours.
    • The labor force participation rate held steady at 61.8% and the employment-population ratio increased to 59.2% from 59.1% in April.
  • Consumer credit increased by $20.7 billion in April (Briefing.com consensus: $17.5 billion) following a downwardly revised $22.3 billion increase (from $24.9 billion) in March.
    • The key takeaway from the report is that revolving credit growth outpaced nonrevolving credit growth in April, suggesting households may be using short-term borrowing to offset pressure from slowing real income growth and depleted savings. If this trend persists, it could support spending in the near term but raise concerns about household balance-sheet stress later.
• Commodities:
  • WTI crude: -2.7% to $90.57/bbl
  • Gold: -3.1% to $4367.40/ozt
  • Copper: -3.8% to $6.29/lb
• Currencies:
  • EUR/USD: -0.8% to 1.1520 
  • GBP/USD: -0.6% to 1.3335
  • USD/CNH: +0.3% to 6.7916
  • USD/JPY: +0.1% to 160.16
• The Day Ahead:
  • Monday: Nothing of note
  • Tuesday: May NFIB Small Business Optimism (prior 95.9) at 6:00 ET; April Trade Balane (Briefing.com consensus -$55.5 bln; prior -$60.3 bln) at 8:30 ET; April Wholesale Inventories (Briefing.com consensus 0.5%; prior 1.3%) and May Existing Home Sales (Briefing.com consensus 0.6%; prior 0.2%) at 10:00 ET; and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.3%) at 7:00 ET; May CPI (Briefing.com consensus 0.5%; prior 0.6%) and Core CPI (Briefing.com consensus 0.3%; prior 0.4%) at 8:30 ET; weekly crude oil inventories (prior -7.97 mln) at 10:30 ET; $39 bln 10-yr Treasury note auction results at 13:00 ET; and May Treasury Budget (prior $215.0 bln) at 14:00 ET
  • Thursday: May PPI (Briefing.com consensus 0.7%; prior 1.4%), Core PPI (Briefing.com consensus 0.4%; prior 1.0%), weekly Initial Claims (Briefing.com consensus 222,000; prior 215,000), and Continuing Claims (prior 1.786 mln) at 8:30 ET; weekly natural gas inventories (prior +95 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: Preliminary June University of Michigan Consumer Sentiment (Briefing.com consensus 46.2; prior 44.8) at 10:00 ET