Bond Market Update

Pressure Persists Despite Strong Auction

• U.S. Treasuries of most tenors finished Thursday on a firmly lower note while the long bond outperformed, but also ended in the red. The trading day started in negative territory after the night saw a rally in equity futures in response to above-consensus results and impressive guidance from chipmaker NVIDIA (NVDA). In addition, there was newfound optimism about the debt ceiling deal being achieved in the coming days. Treasuries added to their losses after the second estimate of Q1 GDP showed an upward revision to 1.3% from 1.1% (Briefing.com consensus 1.1%) while the latest jobless claims report was well below estimates and included a sharp downward revision to last week's total. The post-data retreat lifted yields to fresh highs for the week before a rebound returned the long bond to little changed while shorter tenors reclaimed some of their losses. However, that move quickly found resistance, and was followed by a slow return to lows in the long bond while shorter tenors hit fresh lows ahead of the close. The late weakness took place even though the U.S. Treasury completed this week's phenomenal slate of note auctions with a strong sale of $35 bln in 7-yr notes. Crude oil gave back this week's gain after running into resistance at its 50-day moving average (74.50) while the U.S. Dollar Index rose 0.3% to 104.24, reaching its best level in ten weeks. The U.S. Treasury market will close one hour early tomorrow ahead of Memorial Day weekend.
• Yield Check:
  • 2-yr: +15 bps to 4.49%
  • 3-yr: +14 bps to 4.17%
  • 5-yr: +11 bps to 3.90%
  • 10-yr: +10 bps to 3.81%
  • 30-yr: +4 bps to 4.00%

• News:
  • Fitch placed the AAA rating of the United States on negative watch. 
  • European Central Bank policymaker de Guindos said that wages and profits present an upside risk to inflation while the crisis in the banking sector poses a downside risk while policymaker Vasle repeated that more rate hikes are needed.
  • China Securities Daily noted that there is no room for additional sharp depreciation of the yuan after the currency reached its lowest level against the dollar since late November.
  • South Korea's President Yoon confirmed that he will represent his country at the NATO summit in July.
  • South Korea's April PPI was down 0.1% m/m (expected 0.3%; last 0.1%) but up 1.6% yr/yr (expected 2.3%; last 3.3%). 
  • Singapore's Q1 GDP contracted 1.6% qtr/qtr (expected -0.7%; last -0.7%) but was up 0.4% yr/yr (expected 0.1%; last 2.1%).
  • Germany's Q1 GDP contracted 0.3% qtr/qtr (expected -0.1%; last -0.4%) falling 0.2% yr/yr (expected 0.2%; last 0.3%). June GfK Consumer Climate ticked up to -24.2 from -25.8 (expected -24.0).
  • U.K.'s May CBI Distributive Trades Survey fell to -10 from 5 (expected 10).
  • France's May Business Survey fell to 99 from 101 (expected 101).
  • Spain's April PPI was down 4.5% yr/yr (last -1.4%).
• Today's Data:
  • The second estimate for Q1 GDP was revised up to 1.3% (Briefing.com consensus 1.1%) from the advance estimate of 1.1% and the GDP Price Deflator was revised up to 4.2% (Briefing.com consensus 4.0%) from the advance estimate of 4.0%.
    • The key takeaway from the report is that consumer spending remained strong (+3.8%) in the first quarter in spite of the ongoing inflation pressures.
  • Initial claims for the week ending May 20 increased by 4,000 to 229,000 (Briefing.com consensus 247,000). The prior week saw a downward revision to 225,000 from 242,000. Continuing jobless claims for the week ending May 13 decreased by 5,000 to 1.794 million.
    • The key takeaway from the report is that initial jobless claims are nowhere near recession levels. They continue to register in a manner that connotes tight labor market conditions.
  • Pending Home Sales were unchanged in April (Briefing.com consensus -2.9%) after decreasing 5.2% in March.
  • Weekly natural gas inventories increased by 96 bcf after increasing by 99 bcf a week ago.
  • $35 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.827% (3.535%).
    • Bid-to-cover: 2.61 (2.52).
    • Indirect bid: 72.3% (67.7%).
    • Direct bid: 17.3% (19.2%).
• Commodities:
  • WTI crude: -3.3% to $71.83/bbl
  • Gold: -1.1% to $1943.70/ozt
  • Copper: +0.8% to $3.59/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0723
  • GBP/USD: -0.4% to 1.2317
  • USD/CNH: +0.5% to 7.0930 
  • USD/JPY: +0.5% to 140.00
• The Day Ahead:
  • 8:30 ET: April Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.4%; prior 0.0%), PCE Prices (Briefing.com consensus 0.3%; prior 0.1%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), April Durable Orders (Briefing.com consensus -1.0%; prior 3.2%), Durable orders ex-transportation (Briefing.com consensus -0.1%; prior 0.3%), April advance goods trade deficit (prior -$84.60 bln), April advance Retail Inventories (prior 0.7%), and April advance Wholesale Inventories (prior 0.1%)
  • 10:00 ET: Final May University of Michigan Consumer Sentiment survey (Briefing.com consensus 57.8; prior 57.7)
  • 14:00 ET: Treasury market to close early