Bond Market Update

So Long July Rate Cut

• U.S. Treasuries saw lower yields across the board moving into the cash session, but that all changed following the release of the June Employment Situation Report at 8:30 a.m. ET. That report, headlined by a 4.1% unemployment rate and a 147,000 increase in nonfarm payrolls, could have been better, but it was not rate-cut bad. That understanding quickly got priced into the Treasury market, which succumbed to selling interest that was heaviest at the front of the curve. The implications of the employment report also led to some strengthening in the dollar, and the fed funds futures market nearly priced out any probability of a rate cut at the July FOMC meeting. The reaction to the employment report and a large batch of other data today coincided with reports that the "One Big, Beautiful Bill" is on track to be passed by the House and sent to the president's desk for signing by July 4, when U.S. markets will be closed for the Independence Day holiday.
• Yield Check:
  • 2-yr: +9 bps to 3.88% (+14 bps for the week)
  • 3-yr: +7 bps to 3.84% (+12 bps for the week)
  • 5-yr: +7 bps to 3.94% (+11 bps for the week)
  • 10-yr: +6 bps to 4.35% (+6 bps for the week)
  • 30-yr: +4 bps to 4.86% (+2bps for the week)

• News:
  • House votes 219-213 on procedural motion that advances “One Big Beautiful Bill” to a final House vote, which is expected shortly. House Speaker Mike Johnson says, “we have the votes.” The bill will be passed and signed into law by President Trump's July 4 deadline.
  • The White House is promising Republican fiscal hawks future spending cuts after reconciliation bill passes, according to Politico
  • President Trump, in Truth Social post, says Fed Chairman Jerome Powell should resign immediately
  • Treasury Secretary Bessent, in a CNBC interview, said he doesn't agree with the CBO's growth projections when looking at the reconciliation bill, that he expects more trade deals but warns countries "should be careful" because tariff rates can go back to April 2 levels, and that tariffs have not hurt the economy.
  • When asked if he would take the Fed Chair job if offered, Treasury Secretary Bessent didn't say "no." All he said was that someone being Treasury Secretary and Fed Chair hasn't happened since the 1930s.
  • The U.S. pulled back restrictions on sales of chip design software to China, according to Bloomberg
  • The Pentagon says the Iranian nuclear program was delayed by two years by strikes, according to The Wall Street Journal
  • British Prime Minister Starmer said that Chancellor Reeves will be in her position "for years to come" after Parliament reversed some of her welfare reform plans
  • South Korea's President Lee said that trade negotiations with the U.S. are looking very difficult, and it is unclear if they can be finished ahead of the July 9 deadline.
  • Secretary of State Rubio cancelled his planned trip to Japan and South Korea, but he might still visit Malaysia.
  • China's June Caixin Services PMI 50.6 (expected 51.0; last 51.1)
  • Eurozone's June Services PMI 50.5 (expected 50.0; last 49.7)
• Today's Data:
  • June Nonfarm Payrolls 147K (Briefing.com consensus 120K); Prior was revised to 144K from 139K, June Nonfarm Private Payrolls 74K (Briefing.com consensus 123K); Prior was revised to 137K from 140K, June Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, June Avg. Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior 0.4%, June Average Workweek 34.2 (Briefing.com consensus 34.3); Prior 34.3
    • The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
  • May Trade Balance -$71.5 bln (Briefing.com consensus -$70.5 bln); Prior was revised to -$60.3 bln from -$61.6 bln
    • The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
  • Weekly Initial Claims 233K (Briefing.com consensus 240K); Prior was revised to 237K from 236K, Weekly Continuing Claims 1.964 mln; Prior was revised to 1.964 mln from 1.974 mln
    • The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
  • June S&P Global U.S. Services PMI - Final 52.9; Prior 53.7
  • May Factory Orders 8.2% (Briefing.com consensus 7.9%); Prior was revised to -3.9% from -3.7%
    • The key takeaway from the report is that business spending picked up markedly in May, reflecting the improved activity that followed the pause on reciprocal tariffs announced in April and the subsequent de-escalation in the U.S.-China tariff measures.
  • June ISM Services 50.8% (Briefing.com consensus 50.3%); Prior 49.9%
    • The key takeaway from the report is that services sector activity returned to growth mode, albeit a growth mode that is still modest at best, while the prices index dipped slightly from May. This is not a report exuding a lot of strength for the largest economic sector, but the direction of travel between May and June (up in activity and down in prices) marks a step in the right direction.
• Commodities:
  • WTI crude: -0.8% to $66.94/bbl
  • Gold: -0.6% to $3338.60/ozt
  • Copper: -1.2% to $5.14/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1755
  • GBP/USD: +0.1% to 1.3647
  • USD/CNH: +0.2% to 7.1702
  • USD/JPY: +0.9% to 145.02
• The Week Ahead:
  • Monday: There is no economic data of note
  • Tuesday: June NFIB Small Business Optimism (prior 98.8); May Consumer Credit (Briefing.com consensus $12.2B; prior $17.9B); $58 bln 3-yr note auction
  • Wednesday: MBA Mortgage Applications Index (prior 2.7%); May Wholesale Inventories (Briefing.com consensus -0.3%; prior 0.2%); EIA Crude Oil Inventories (prior +3.845M); $39 bln 10-yr note reopening
  • Thursday: Initial Jobless Claims (Briefing.com consensus 245K; prior 233K) and Continuing Jobless Claims (prior 1964K); EIA Natural Gas Inventories (prior +55 bcf); $22 bln 30-yr bond reopening
  • Friday: June Treasury Budget (Briefing.com consensus -$257.5B; prior -$316.0B)

Bessent Speaks

• Treasury yields remain elevated in a curve-flattening trade as the June employment report squashed rising expectations for a possible rate cut at the July FOMC meeting. The probability of a 25-basis point cut in July sits at just 4.7% now, versus 23.8% yesterday, according to the CME FedWatch Tool.
• Treasury Secretary Bessent, in a CNBC interview, said he doesn't agree with the CBO's growth projections when looking at the reconciliation bill, that he expects more trade deals but warns countries "should be careful" because tariff rates can go back to April 2 levels, and that tariffs have not hurt the economy.
• When asked if he would take the Fed Chair job if offered, he didn't say "no." All he said was that someone being Treasury Secretary and Fed Chair hasn't happened since the 1930s.
• The U.S. dollar has gotten a boost with the July rate cut probability fading away. The U.S. Dollar Index is up 0.4% to 97.13.
• Yield check:
  • 2-yr: +8 bps to 3.87%
  • 3-yr: +6 bps to 3.83%
  • 5-yr: +5 bps to 3.92%
  • 10-yr: +4 bps to 4.33%
  • 30-yr: +3 bps to 4.85%

Data Recon

• Factory orders surged 8.2% month-over-month in May (Briefing.com consensus 7.9%) following a downwardly revised 3.9% decline (from -3.7%) in April. Excluding transportation, factory orders increased a more modest 0.2%, following a 0.6% decline in April. Shipments of manufactured goods increased 0.1% on the heels of a 0.3% decline in April.
  • The key takeaway from the report is that business spending picked up markedly in May, reflecting the improved activity that followed the pause on reciprocal tariffs announced in April and the subsequent de-escalation in the U.S.-China tariff measures.
• The ISM Services PMI increased to 50.8% in June (Briefing.com consensus 50.3%) from 49.9% in May. The dividing line between expansion and contraction is 50.0%, so the June reading reflects services sector activity returning to an expansion mode.
  • The key takeaway from the report is that services sector activity returned to growth mode, albeit a growth mode that is still modest at best, while the prices index dipped slightly from May. This is not a report exuding a lot of strength for the largest economic sector, but the direction of travel between May and June (up in activity and down in prices) marks a step in the right direction.
• Yield check:
  • 2-yr: +9 bps to 3.88%
  • 3-yr: +7 bps to 3.84%
  • 5-yr: +6 bps to 3.93%
  • 10-yr: +4 bps to 4.33%
  • 30-yr: +3 bps to 4.85%

Data Recon

• The June Employment Situation Report featured a decline in the unemployment rate to 4.1% from 4.2% and a relatively solid 147,000 increase in nonfarm payrolls. That's not to say there weren't points of weakness in the report. There were, namely the participation rate coming down, the percentage of employees unemployed for 27 weeks or more going up, and avg. weekly hours dipping to 34.2 from 34.3.
  • The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
• Initial jobless claims for the week ending June 28 decreased by 4,000 to 233,000 (Briefing.com consensus: 240,000), while continuing jobless claims for the week ending June 21 were unchanged at 1.964 million.
  • The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
• The trade deficit widened to $71.5 billion in May (Briefing.com consensus: -$70.5 billion) from an upwardly revised $60.3 billion (from -$61.6 billion) in April. That widening was the result of exports being $11.6 billion less than April exports and imports being $0.3 billion less than April imports.
  • The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
• Yield check:
  • 2-yr: +8 bps to 3.87%
  • 3-yr: +7 bps to 3.84%
  • 5-yr: +6 bps to 3.93%
  • 10-yr: +4 bps to 4.33%
  • 30-yr: +2 bps to 4.84%

Three's Company

• U.S. Treasuries are locked in a mechanical trade in front of a large batch of economic data. Yields are down three basis points across the curve from the 2-yr note to the 30-yr bond. The gains follow the news that the House passed a procedural vote on the "One Big, Beautiful Bill" that cleared the way for a full House vote today and likely passage of the bill so that it is on the president's desk for signing by July 4. Other drivers include rate cut expectations amid speculation that the June jobs report will be soft, and as President Trump again chastises Fed Chair Powell, saying he "should resign immediately," and some safety positioning in front of the long holiday weekend for the U.S. There will be an early close today at 2:00 p.m. ET (stocks close at 1:00 p.m. ET), and markets will be closed Friday for Independence Day. 
• Yield Check:
  • 2-yr: -3 bps to 3.76%
  • 3-yr: -3 bps to 3.74%
  • 5-yr: -3 bps to 3.84%
  • 10-yr: -3 bps to 4.26%
  • 30-yr: -3 bps to 4.79%

• News:
  • House votes 219-213 on procedural motion that advances “One Big Beautiful Bill” to a final House vote, which is expected shortly. House Speaker Mike Johnson says, “we have the votes.”
  • The White House is promising Republican fiscal hawks future spending cuts after reconciliation bill passes, according to Politico
  • President Trump, in Truth Social post, says Fed Chairman Jerome Powell should resign immediately
  • The U.S. pulled back restrictions on sales of chip design software to China, according to Bloomberg
  • The Pentagon says the Iranian nuclear program was delayed by two years by strikes, according to The Wall Street Journal
  • British Prime Minister Starmer said that Chancellor Reeves will be in her position "for years to come" after Parliament reversed some of her welfare reform plans
  • South Korea's President Lee said that trade negotiations with the U.S. are looking very difficult, and it is unclear if they can be finished ahead of the July 9 deadline.
  • Secretary of State Rubio cancelled his planned trip to Japan and South Korea, but he might still visit Malaysia.
  • China's June Caixin Services PMI 50.6 (expected 51.0; last 51.1)
  • Eurozone's June Services PMI 50.5 (expected 50.0; last 49.7)
• Commodities:
  • WTI crude: -0.3% to $67.22/bbl
  • Gold: flat at $3359.80/ozt
  • Copper: -0.5% to $5.17/lb
• Currencies:
  • EUR/USD: flat at 1.1793
  • GBP/USD: +0.1% to 1.3656
  • USD/CNH: flat at 7.1587
  • USD/JPY: +0.1% to 143.84
• The Day Ahead:
  • 08:30 ET: June nonfarm payrolls (Briefing.com consensus 120K; prior 139K); nonfarm private payrolls (Briefing.com consensus 123K; prior 140K); unemployment rate (Briefing.com consensus 4.2%; prior 4.2%); avg. hourly earnings (Briefing.com consensus 0.3%; prior 0.4%), and average workweek (Briefing.com consensus 34.3; prior 34.3)
  • 08:30 ET: Initial jobless claims (Briefing.com consensus 240K; prior 236K) and continuing jobless claims (prior 1974K)
  • 08:30 ET: May Trade Balance (Briefing.com consensus -$70.5B; prior -$61.6B)
  • 09:45 ET: June S&P Global US Services PMI - Final (prior 53.7%)
  • 10:00 ET: June ISM Services PMI (Briefing.com consensus 50.3%; prior 49.9%)
  • 10:00 ET; May Factory Orders (Briefing.com consensus 7.9%; prior -3.7%)
  • 10:30 ET: EIA Natural Gas Inventories (prior +96 bcf)