Bond Market Update

A Firmer Tone

• U.S. Treasuries are trading somewhat firmer this morning following yesterday's seesaw session in the wake of the Moody's downgrade of the U.S. credit rating. Market participants seemed to have taken some solace in the support that showed up when the 10-yr yield topped 4.50% and the 30-yr yield topped 5.00%. There is no U.S. economic data today to drive things, but several Fed officials will be speaking, and the president will be going to Capitol Hill to meet with conservative House Republicans to encourage the passage of the reconciliation bill. Separately, the PBOC cut its 1-yr and 5-yr loan prime rates by 10 basis points each to 3.00% and 3.50%, respectively, while the Reserve Bank of Australia lowered its cash rate by 25 bps to 3.85%. Both moves were expected. The U.S. Dollar Index is down 0.1% to 100.29.
• Yield Check:
  • 2-yr: unch at 3.96%
  • 3-yr: -2 bps to 3.94%
  • 5-yr: -2 bps to 4.06%
  • 10-yr: -1 bp to 4.46%
  • 30-yr: unch at 4.92%

• News:
  • President Trump will meet with conservative House Republicans today to try to convince them to abandon push for larger Medicaid cuts in the reconciliation bill. House Speaker Mike Johnson wants bill passed this week, according to Politico
  • House Republican leadership has not yet reached agreement on the state and local tax deduction in the reconciliation bill, according to Politico
  • Senate votes 66-32 to advance stablecoin legislation to a full Senate vote
  • The People's Bank of China reduced its one-year (3.00%) and five-year (3.50%) loan prime rates by ten basis points each, which the market had expected
  • The Reserve Bank of Australia lowered its cash rate by 25 basis points to 3.85%, as expected
  • Germany's producer prices saw a larger-than-expected drop in April, contributing to expectations for more easing from the European Central Bank
  • Japan had a weak 20-yr bond auction, which helped send yields on longer tenors to fresh multi-year highs
  • British Prime Minister Starmer touted a freshly-signed trade deal with the EU
  • Bank of England Chief Economist Pill said that cutting rates by 25 basis points per quarter is too rapid due to a stubborn inflation outlook
  • India is reportedly discussing a three-tranche structure for a trade deal with the U.S.
  • Germany's April PPI -0.6% m/m (expected -0.3%; last -0.7%); -0.9% yr/yr (expected -0.6%; last -0.2%)
• Commodities:
  • WTI crude: -0.5% to $62.39/bbl
  • Gold: +0.2% to $3239.60/ozt
  • Copper: -0.6% to $4.64/lb
• Currencies:
  • EUR/USD: flat at 1.1246
  • GBP/USD: flat at 1.3366
  • USD/CNH: +0.1% to 7.2196
  • USD/JPY: -0.1% to 144.62
• The Day Ahead:
  • There is no U.S. economic data of note
  • 09:00 ET: Richmond Fed President Barkin (non-FOMC voter)
  • 09:00 ET: Atlanta Fed President Bostic (non-FOMC voter)
  • 09:30 ET: Boston Fed President Collins (FOMC voter)
  • 13:00 ET: St. Louis Fed President Musalem (FOMC voter)
  • 17:00 ET: Fed Governor Kugler (FOMC voter)
  • 19:00 ET: San Francisco Fed president Daly (non-FOMC voter)