Bond Market Update

An Excitable Market

• U.S. Treasuries had an excitable start to the day, reacting to a post by President Trump that he is recommending a straight 50% tariff on the EU because the trade talks are going nowhere. That post triggered a flight-to-safety into Treasuries that was motivated, in part, by growth concerns and a heightened state of uncertainty about the tariff developments going into the holiday weekend. The 10-yr note yield went from 4.54% to 4.45% in a hurry, while the 30-yr bond yield dropped from 5.04% to 4.98%. The market's excitable state calmed down after a White House official told CNBC that the president's remark should be viewed as negotiating leverage and that nothing has been implemented yet. Separately, Treasury Secretary Bessent said in a Bloomberg TV interview that he is not worried about the rise in Treasury yields, noting that yields in other countries have risen faster and that it is possible the increase here could be the bond market's way of pricing in stronger growth because of the reconciliation bill. In any case, the bond market retraced a good portion of its early gains, yet Treasuries closed the week in an abbreviated session on a winning note, with yields across the curve coming down from Thursday's settlement levels. The dollar, however, had a tough day against other major currencies. The U.S. Dollar Index was down 0.8% to 99.13.
• Yield Check:
  • 2-yr: -1 bp to 3.99% (unchanged for the week)
  • 3-yr: -2 bps to 3.96% (-1 bp for the week)
  • 5-yr: -3 bps to 4.08% (+1 bp for the week)
  • 10-yr: -4 bps to 4.51% (+7 bps for the week)
  • 30-yr: -2 bps to 5.04% (+14 bps for the week)

• News:
  • President Trump says in Truth Social Post that he is recommending a straight 50% tariff on EU starting June 1, 2025 because discussions with the EU are going nowhere
  • White House officials tell CNBC the following: President Trump's posts should be viewed as "negotiation leverage"; notes that President Trump "recommended" a tariff, he is not implementing it yet
  • The Senate plans to make changes to the House-passed reconciliation bill, including more spending reductions, softened Medicaid language, and preservation of some green energy spending, according to Politico
  • Treasury Secretary Scott Bessent Bloomberg TV interview: Not worried about rise in yields; notes other countries' yields have increased faster. Bond markets could also be pricing in growth because of the reconciliation bill.
  • President Trump's trade team is pushing Europe for unilateral tariff reductions to avoid an additional 20% tariff, according to FT
  • Boston Fed President Susan Collins (voting FOMC member) in interview suggests that there could be zero rate cuts this year, according to Barron's
  • U.S. and China officials hold a call and cite progress on trade talks. Both sides agreed to maintain communication, according to CNBC
  • Large banks exploring a joint stablecoin, according to The Wall Street Journal
  • President Trump warns Apple (AAPL) that it will have to pay a tariff of at least 25% if iPhones that will be sold in the U.S. are not made in the U.S.
  • Bank of England Governor Bailey said that more signs of receding inflation are needed in order to cut rates
  • European Central Bank policymakers Rehn and Stournaras spoke in favor of a rate cut in June
• Today's data:
  • New home sales surged 10.9% month-over-month in April to a seasonally adjusted annual rate of 743,000 units (Briefing.com consensus 679,000) from a downwardly revised 670,000 (from 724,000) in March. On a year-over-year basis, new home sales were up 3.3%.
    • The key takeaway from the report is that new home sales in April were bolstered by a decline in the median sales price; however, the excitement surrounding the headline beat was muted by the sharp downward revision to new home sales for March. Taking that revision into account, there wasn't a great deal of change in the March-April period compared to what economists knew and expected going into the April report.
• Commodities:
  • WTI crude: +0.5% to $61.53/bbl
  • Gold: +2.1% to $3365.40/ozt
  • Copper: +3.9% to $4.86/lb
• Currencies:
  • EUR/USD: +0.8% to 1.1364
  • GBP/USD: +0.8% to 1.3534
  • USD/CNH: -0.5% to 7.1722
  • USD/JPY: -1.1% to 142.50
• The Week Ahead:
  • Monday: U.S. markets closed for Memorial Day
  • Tuesday: April Durable Goods Orders; March FHFA Housing Price Index; March S&P Case-Shiller Home Price Index; May Consumer Confidence; 2-Yr Note Auction
  • Wednesday: MBA Mortgage Applications Index; 5-Yr Note Auction; FOMC Meeting Minutes
  • Thursday: Q1 GDP - Second Estimate; Weekly Initial and Continuing Jobless Claims; April Pending Home Sales; EIA Crude Oil Inventories; EIA Natural Gas Inventories; 7-Yr Note Auction
  • Friday: April Adv. Intl Trade in Goods, Retail Inventories, and Wholesale Inventories; April Personal income and Spending; May Chicago PMI; May Univ. of Michigan Consumer Sentiment - Final