Bond Market Update

Treasuries Climb Despite Solid Jobs Report

• U.S. Treasuries finished a bumpy week with modest gains across the curve, though the 2-yr note just missed a higher finish for the week while longer tenors recorded slim gains for the week. The trading day started with modest gains after a night that saw a limited slate of data and little movement in the price of oil. The biggest development was the growing political turmoil in the U.K., where Prime Minister Starmer has defied calls for his resignation after Labour and the opposition Conservative party were dealt historical defeats in local elections across the U.K. while Reform had the strongest showing. These results were largely in line with pre-election polling, resulting in a limited impact on the pound and Gilts. Treasuries added to their opening gains during the first 90 minutes of action, rising through the release of the Employment Situation report for April, which showed very strong headline nonfarm payrolls growth (115,000; Briefing.com consensus 67,000), but average hourly earnings (0.2%; Briefing.com consensus 0.3%) showed a smaller-than-expected increase, reflecting some pressure on spending power, especially when accounting for the recent inflationary shock. Treasuries dipped from highs in mid-morning action, but they found support well before revisiting their opening levels. The market spent the afternoon in a sideways range with 10s and 30s defending modest gains for the week. Crude oil climbed back above $95/bbl, but still lost nearly $6.50/bbl for the week, while the U.S. Dollar Index fell 0.2% to 97.93, extending this week's loss to 0.3%.
• Yield Check:
  • 2-yr: -3 bps to 3.89% (UNCH this week)
  • 3-yr: -3 bps to 3.92% (+1 bp this week)
  • 5-yr: -3 bps to 4.01% (-1 bp this week)
  • 10-yr: -3 bps to 4.36% (-2 bps this week)
  • 30-yr: -2 bps to 4.95% (-2 bps this week)

• News:
  • Malaysia's central bank left its policy rate at 2.75%, as expected.
  • Indonesia's central bank warned about a big intervention to support the rupiah.
  • President Trump gave the EU a July 4 deadline to fulfill the trade agreement or face higher tariffs.
  • Local elections in the U.K. resulted in a trouncing for the ruling Labour party and big losses for Conservative opposition while Reform had the best showing. Prime Minister Starmer said today that he will not resign despite the public's sharp turn against his party but calls for his departure are growing louder.
  • Secretary of State Rubio is meeting with Italy's Prime Minister Meloni today.
  • Japan's April Services PMI hit 51.0 (expected 51.2; last 53.4). March Overall Wage Income was up 2.7% yr/yr (expected 3.2%; last 3.4%) and Overtime Pay rose 1.9% yr/yr (last 3.4%).
  • South Korea's March Current Account surplus reached $37.33 bln (last surplus of $23.19 bln).
  • Germany's March trade surplus reached EUR14.3 bln (expected surplus of EUR17.8 bln; last surplus of EUR19.5 bln) as imports grew 5.1% m/m (expected 0.8%; last 4.9%) and exports rose 0.5% m/m (expected -1.7%; last 3.6%). March Industrial Production was down 0.7% m/m (expected 0.4%; last -0.5%), falling 3.0% yr/yr (last -0.3%).
  • Spain's March Industrial Production was up 1.8% yr/yr (last -0.9%).
  • Swiss Q2 SECO Consumer Climate fell to -40 from -30 (expected -46).
• Today's Data:
  • April nonfarm payrolls increased by 115,000 (Briefing.com consensus: 67,000). The 3-month average for total nonfarm payrolls decreased to 48,000 from 63,000. March nonfarm payrolls revised to 185,000 from 178,000. February nonfarm payrolls revised to -156,000 from -133,000.
    • April private sector payrolls increased by 123,000 (Briefing.com consensus: 60,000). March private sector payrolls revised to 190,000 from 186,000. February private sector payrolls revised to -148,000 from -129,000.
    • April unemployment rate was 4.3% (Briefing.com consensus: 4.3%) versus 4.3% in March. Persons unemployed for 27 weeks or more accounted for 25.3% of the unemployed versus 25.4% in March. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.2% from 8.0% in March.
    • April average hourly earnings were up 0.2% (Briefing.com consensus: 0.3%) on the heels of a 0.2% increase in March. Over the last 12 months, average hourly earnings have risen 3.6%, versus a downwardly revised 3.4% (from 3.5%) for the 12 months ending in March.
    • The average workweek in April was 34.3 hours (Briefing.com consensus: 34.2) versus 34.2 hours in March. The manufacturing workweek increased 0.1 hour to 40.4 hours. Factory overtime was unchanged at 3.0 hours.
    • The labor force participation rate decreased to 61.8% from 61.9% in March and the employment-population ratio decreased to 59.1% from 59.2% in March.
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for May dropped to 48.2 (Briefing.com consensus: 50.5) from the final reading of 49.8 for April. In the same period a year ago, the index stood at 52.2.
    • The key takeaway from the report is that consumers are clearly concerned about rising costs and their ability to out-earn the inflation.
  • Wholesale Inventories were up 1.3% in March (Briefing.com consensus 1.4%) after increasing a revised 0.9% (from 0.8%) in February.
• Commodities:
  • WTI crude: +0.5% to $95.39/bbl
  • Gold: +0.5% to $4730.20/ozt
  • Copper: +1.9% to $6.30/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1781
  • GBP/USD: +0.6% to 1.3625
  • USD/CNH: -0.2% to 6.7964
  • USD/JPY: -0.1% to 156.70
• The Week Ahead:
  • Monday: April Existing Home Sales (Briefing.com consensus 4.05 mln; prior 3.98 mln) at 10:00 ET and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Tuesday: April NFIB Small Business Optimism (Briefing.com consensus 96.1; prior 95.8) at 6:00 ET; April CPI (Briefing.com consensus 0.6%; prior 0.9%) and Core CPI (Briefing.com consensus 0.4%; prior 0.2%) at 8:30 ET; $42 bln 10-yr Treasury note auction results at 13:00 ET; and April Treasury Budget (Briefing.com consensus $202.5 bln; prior -$164.1 bln) at 14:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -4.4%) at 7:00 ET; April PPI (Briefing.com consensus 0.4%; prior 0.5%) and Core PPI (Briefing.com consensus 0.3%; prior 0.1%) at 8:30 ET; weekly crude oil inventories (prior -2.31 mln); and $25 bln 30-yr Treasury bond auction results at 13:00 ET
  • Thursday: April Retail Sales (Briefing.com consensus 0.4%; prior 1.7%), Retail Sales ex-auto (Briefing.com consensus 0.4%; prior 1.9%), weekly Initial Claims (Briefing.com consensus 208,000; prior 200,000), Continuing Claims (prior 1.766 mln), April Import Prices (prior 0.8%), Import Prices ex-oil (prior 0.6%), Export Prices (prior 1.6%), and Export Prices ex-oil (prior 1.7%) at 8:30 ET; March Business Inventories (Briefing.com consensus 0.3%; prior 0.4%) at 10:00 ET; and weekly natural gas inventories (prior +63 bcf) at 10:30 ET
  • Friday: May Empire State Manufacturing survey (Briefing.com consensus 6.2; prior 11.0) at 8:30 ET; and April Industrial Production (Briefing.com consensus 0.2%; prior -0.5%) and Capacity Utilization (Briefing.com consensus 75.7%; prior 75.7%) at 9:15 ET

Drifting Near Highs

• U.S. Treasuries have inched down from their highs over the past two hours, though even with the recent backtracking, all tenors remain comfortably above their starting levels. Overall, the market is on course for a quiet finish to a week that saw some volatility, but yields on 5s and shorter tenors are now essentially unchanged for the week while yields on 10s and 30s remain modestly lower from last Friday's settlement. Elsewhere, equities have continued padding their gains with the S&P 500 (+0.8%) now up 2.3% for the week even though crude oil has climbed back to $96/bbl, trimming this week's loss to about $6/bbl.
• Yield Check:
  • 2-yr: -3 bps to 3.89%
  • 3-yr: -3 bps to 3.92%
  • 5-yr: -3 bps to 4.02%
  • 10-yr: -3 bps to 4.37%
  • 30-yr: -2 bps to 4.95%

Data Recon

• The preliminary reading for the University of Michigan Consumer Sentiment Index for May dropped to 48.2 (Briefing.com consensus: 50.5) from the final reading of 49.8 for April. In the same period a year ago, the index stood at 52.2.
  • The key takeaway from the report is that consumers are clearly concerned about rising costs and their ability to out-earn the inflation.
• Yield Check:
  • 2-yr: -4 bps to 3.88%
  • 3-yr: -4 bps to 3.91%
  • 5-yr: -4 bps to 4.00%
  • 10-yr: -4 bps to 4.35%
  • 30-yr: -3 bps to 4.94%

Higher Start Extended

• U.S. Treasuries trade on their highs after adding to their starting gains. The market climbed during the first hour of action even though the Employment Situation report for April showed strong headline nonfarm payrolls growth (123,000; Briefing.com consensus 67,000). Average hourly earnings growth (0.2%; Briefing.com consensus 0.3%) was a touch below expectations, which likely helped the market build on its starting gains. Yesterday's selling pressured the 10-yr note into negative territory for the week, but the entire complex is now back on track for a higher finish to the week. Similarly, equities are off to an upbeat start with the Nasdaq (+1.2%) and S&P 500 (+0.7%) extending this week's gains to 4.0% and 2.2%, respectively.
• Yield Check:
  • 2-yr: -4 bps to 3.88%
  • 3-yr: -4 bps to 3.91%
  • 5-yr: -4 bps to 4.00%
  • 10-yr: -4 bps to 4.35%
  • 30-yr: -3 bps to 4.94%

Data Recon

• The April Employment Situation Report featured a 115,000 increase in nonfarm payrolls, a 4.3% unemployment rate, and a bump in the average workweek to 34.3 hours (from 34.2). This was not an indisputably strong employment report, however. Average hourly earnings growth was weaker than expected, the labor force participation rate dipped, and the U-6 unemployment rate, which accounts for unemployed and underemployed workers, increased.
  • The key takeaway from the report, though, may just be found in a number that looks good on the surface but could be a harbinger of lower spending activity if inflation pressures aren't controlled. We're talking about the 3.6% year-over-year increase in average hourly earnings, which leaves real earnings up just 0.3% when pitted against the March CPI report or up just 0.1% when measured against the latest PCE Price Index. That doesn't provide a lot of discretionary spending cushion without taking on debt or dipping into savings.
• Yield Check:
  • 2-yr: -3 bps to 3.89%
  • 3-yr: -4 bps to 3.91%
  • 5-yr: -3 bps to 4.01%
  • 10-yr: -2 bps to 4.37%
  • 30-yr: -2 bps to 4.95%