Bond Market Update

Market Shakes off Moody's Headline Shock

• U.S. Treasuries had a tough overnight session following Moody's downgrade of the U.S. credit rating to Aa from Aaa after Friday's close. The 10-yr note yield went as high as 4.56%, and the 30-yr bond yield went as high as 5.04%. Those moves, though, were largely reversed in the cash session. The seeming catalysts were an understanding that the Moody's downgrade wasn't really a "surprise," given that it came years after similar downgrades by Standard & Poor's and Fitch Ratings, a dour-looking Leading Economic Index for April, and short-covering activity. The 10-yr note yield and 30-yr bond yield settled today's session at 4.47% and 4.94%, respectively. The dollar also improved as yields came in. Down as much as 1.0% in the overnight trade, the U.S. Dollar Index was down 0.7% at 100.42 as of this writing. Stocks were also in much better shape. The S&P 500 was down 0.1% after being down 1.1% shortly after the start of today's trading.
• Yield Check:
  • 2-yr: unch at 3.98%
  • 3-yr: unch at 3.96%
  • 5-yr: +2 bps to 4.08%
  • 10-yr: +3 bps to 4.47%
  • 30-yr: +4 bps to 4.94%

• News:
  • Moody's Ratings (Moody's) has downgraded the U.S. long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed the outlook to stable from negative. This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.
  • Treasury Secretary Scott Bessent in an interview says Moody's downgrade is a "lagging indicator," accoridng to NBC News
  • Treasury Secretary Bessent said tariff rates could return to April 2 levels for countries that do not negotiate in good faith, according to NBC News
  • House Budget Committee advanced large reconciliation bill that includes tax cuts, spending cuts, energy reform, immigration reform, and a debt ceiling increase. The full House vote is expected late this week, according to Politico
  • President Trump says call with Russian President Putin went "very well"; says "Russia and Ukraine will immediately start negotiations toward a ceasefire and, more importantly, an end to the war"
  • JPMorgan Chase CEO Jaime Dimon at investor day says he is not a buyer of credit today; says "geopolitical risk is very, very, very high."
  • Atlanta Fed President Raphael Bostic (not a voting FOMC member) CNBC interview: Leaning toward one rate cut this year; Treasury markets are functioning quite well, more concerned with what is happening with Fed mandates
  • Japan's Prime Minister Ishiba repeated that current tariff levels are unacceptable and that he is looking for a "win-win" trade agreement with the U.S.
  • The European Commission lowered its 2025 growth forecast for the eurozone to 0.9% from 1.3% while the outlook for 2026 was cut to 1.4% from 1.6%
  • ECB policymaker Wunsch said that the ECB may have to cut rates below 2.00%, but also said that he does not expect a 50-basis point cut at this time
  • China's April Industrial Production 6.1% yr/yr (expected 5.7%; last 7.7%), April Retail Sales 5.1% yr/yr (expected 6.0%; last 5.9%), and April Fixed Asset Investment 4.0% yr/yr (expected 4.4%; last 4.2%)
  • Eurozone's April CPI 0.6% m/m, as expected (last 0.6%); 2.2% yr/yr, as expected (last 2.2%). April Core CPI 1.0% m/m, as expected (last 1.0%); 2.7% yr/yr, as expected (last 2.4%)
• Today's Data:
  • The April Leading Economic Index declined 1.0% (Briefing.com consensus -0.7%) following a downwardly revised0.8% decline (from -0.7%) in March.
• Commodities:
  • WTI crude: +0.2% to $62.12/bbl
  • Gold: +1.5% to $3234.80/ozt
  • Copper: +2.0% to $4.67/lb
• Currencies:
  • EUR/USD: +0.6% to 1.1234
  • GBP/USD: +0.6% to 1.3355
  • USD/CNH: +0.1% to 7.2154
  • USD/JPY: -0.5% to 144.97
• The Day Ahead:
  • There is no U.S. economic data of note