Bond Market Update

Struggling For Direction

• U.S. Treasuries had a mixed showing to begin the week, as 5s and shorter tenors finished flat while 10s and 30s settled modestly lower after outperforming last week. The Monday session saw limited movement as participants pondered the implications of Friday's sharp slide in technology stocks, remaining on the lookout for potential continuation of the sudden volatility. In addition to worries about the resilience of the hottest sector of the market, investors had to contend with another day of volatile action in energy prices, as WTI crude raced toward $96/bbl overnight, but eventually gave back the bulk of its gain. The initial rally followed news that Iran struck some targets in Israel, but President Trump said in an early morning social media post that despite the skirmish, Israel and Iran are still looking for a lasting ceasefire. The assurance from President Trump helped bring oil back toward $90/bbl, but Treasuries could not build on their early gains, with most tenors turning lower in the late morning. Some pressure persisted until the close, but the overall losses in longer tenors were kept in check while shorter tenors returned to little changed. Today's session was free of noteworthy data, but the Federal Reserve Bank of New York released its May Survey of Consumer Expectations, showing a slight dip in year-ahead inflation expectations (to 3.5% from 3.6%) while the three-year (3.1%) and five-year (3.0%) outlooks remained unchanged. Concerns about the strength of the labor market grew, pressuring the mean perceived probability of finding a job to replace a potential loss of a current job to 43.7% from 45.9% in April. Crude oil settled above $91/bbl while the U.S. Dollar Index slipped 0.1% to 100.01.
• Yield Check:
  • 2-yr: UNCH at 4.16%
  • 3-yr: UNCH at 4.21%
  • 5-yr: UNCH at 4.28%
  • 10-yr: +2 bps to 4.55%
  • 30-yr: +3 bps to 5.02%

• News:
  • China's President Xi made a State visit to North Korea.
  • Italy's Intesa Sanpaolo offered EUR30.6 bln to purchase Monte dei Pachi di Siena, looking to form the second-largest lender in the eurozone.
  • Japan's Q1 GDP expanded 0.5% qtr/qtr, as expected (last 0.3%) and Q1 GDP Annualized was up 1.8% qtr/qtr (expected 2.1%; last 0.7%). Q1 GDP Price Index was up 3.2% yr/yr (expected 3.4%; last 3.4%), Q1 GDP Capital Expenditure was down 0.7% qtr/qtr (expected 0.3%; last 0.1%), Q1 GDP Private Consumption was up 0.3% qtr/qtr, as expected (last 0.1%), and Q1 GDP External Demand was up 0.3% qtr/qtr, as expected (last 0.0%). April Current Account surplus reached JPY4.21 trln (expected JPY3.26 trln; last JPY3.90 trln), May Bank Lending was up 5.7% yr/yr (expected 5.6%; last 5.4%), and May Economy Watchers Current Index hit 43.6 (expected 41.9; last 40.8).
  • Eurozone's June Sentix Investor Confidence rose to -13.4 from -16.4 (expected -13.8).
  • Germany's April Factory Orders were down 3.8% m/m (expected -2.2%; last 4.5%).
• Commodities:
  • WTI crude: +0.8% to $91.26/bbl
  • Gold: -0.1% to $4363.30/ozt
  • Copper: +1.0% to $6.35/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1531
  • GBP/USD: UNCH at 1.3341 
  • USD/CNH: UNCH at 6.7843
  • USD/JPY: UNCH at 160.23
• The Day Ahead:
  • 6:00 ET: May NFIB Small Business Optimism (prior 95.9)
  • 8:30 ET: April Trade Balane (Briefing.com consensus -$55.5 bln; prior -$60.3 bln)
  • 10:00 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%)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results