Bond Market Update

A Fairly Stable Day despite Headline Volatility

• U.S. Treasuries had a relatively stable session, with shorter-dated maturities slightly outperforming longer-dated maturities. This trade occurred against a backdrop of mixed economic data that featured a stronger-than-expected increase in personal income in April, a weaker-than-expected Chicago PMI for May, and some anxiety-inducing headlines on the U.S.-China trade relationship. Treasury Secretary Bessent said those talks are "a bit stalled," and President Trump was more direct, saying that China has violated the preliminary trade agreement and "So much for being MR. NICE GUY!" Later, in an Oval Office press conference, he said he expects to talk to President Xi and hopefully work things out. That view helped stabilize the stock market, whereas the Treasury market saw some stabilization, presumably from month-end rebalancing activity out of stocks and into bonds. The U.S. Dollar Index was little changd at 99.33.
• Yield Check:
  • 2-yr: -2 bps to 3.92% (-8 bps for the week)
  • 3-yr: -3 bps to 3.88% (-8 bps for the week)
  • 5-yr: -2 bps to 3.98% (-10 bps for the week)
  • 10-yr: -1 bp to 4.42% (-9 bps for the week)
  • 30-yr: +1 bps to 4.94% (-10 bps for the week)

• News:
  • President Trump says China violated the preliminary trade agreement, and "So much for being Mr. NICE GUY!"
  • Treasury Secretary Scott Bessent in interview says he will meet with his Japanese counterparts on trade today, but China talks are "a bit stalled," according to Fox News
  • President Trump is considering using different authority to impose tariffs for 150 days if appeal of court ruling fails, according to The Wall Street Journal
  • US potentially adding more China technology related sanctions, accoridng to Bloomberg
  • President Trump says he is sure that he will talk to President Xi and hopefully work things out
  • JPMorgan Chase CEO Jamie Dimon believes that a "crack" in the bond market will happen, according to Bloomberg
  • Japan's top trade negotiator is visiting Washington today and there was speculation that an announcement about a trade agreement could be made shortly after Wall Street closes for the day
  • ECB policymaker Panetta said that there is reduced room to cut rates, but the macroeconomic outlook remains weak and could be worsened by trade tensions
  • Bank of England policymaker Taylor spoke in favor of lower rates, saying that downside risks are building
  • Japan's May Tokyo CPI 3.4% (last 3.4%) and Tokyo Core CPI 3.6% y/yr (expected 3.5%; last 3.4%)
• Today's Data:
  • Personal income increased a robust 0.8% month-over-month in April (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.5%) in March. Personal spending rose 0.2% month-over-month, as expected, following an unrevised 0.7% increase in March.The PCE Price Index was up 0.1% month-over-month, as expected, which left it up a palatable 2.1% year-over-year versus 2.3% in March. The core-PCE Price Index was also up 0.1%, as expected, leaving it up 2.5% year-over-year versus 2.7% in March.
    • The key takeaway from the report is manifold: inflation rates are moderating, personal income growth is strong, and the personal savings rate picked up to 4.9% from 4.3% in March, which points to pent-up spending potential that will keep the economy on a growth track in the second quarter.
  • The final University of Michigan Index of Consumer Sentiment for May increased to 52.2 (Briefing.com consensus 50.8) from the preliminary reading of 50.8. The final reading for April was also 52.2. In the same period a year ago, the index stood at 69.1.
    • The key takeaway from the report is that it ends four consecutive months of plunging declines in sentiment, although consumers still have concerns about their current personal finances and the future, with inflation expectations weighing.
  • The May Chicago PMI dropped to 40.5 (Briefing.com consensus 45.0) from 44.6 in April.
• Commodities:
  • WTI crude: -0.3% to $60.76/bbl
  • Gold: -0.8% to $3315.70/ozt
  • Copper: +0.2% to $4.68/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1356
  • GBP/USD: -0.1% to 1.3471
  • USD/CNH: +0.2% to 7.2040
  • USD/JPY: -0.2% to 143.90
• The Week Ahead:
  • Monday: April Construction Spending (prior -0.5%); May ISM Manufacturing Index (prior 48.7%); Fed Chair Powell Speech
  • Tuesday: April Factory Orders (prior 4.3%); Fed Governor Cook speech
  • Wednesday: MBA Mortgage Applications Index (prior -1.2%); May ADP Employment Change (prior 62K); May ISM Services (prior 51.6%); EIA Crude Oil Inventories (prior -2.80M); Beige Book
  • Thursday: Initial Jobless Claims (prior 240K) and Continuing Jobless Claims (prior 1919K); April Trade Balance (prior -$140.5B); Q1 Productivity - Rev (prior -0.8%) and Q1 Unit Labor Costs - Rev (prior 5.7%); EIA Natural Gas Inventories (prior +101 bcf); Fed Governor Kugler speech
  • Friday: May Nonfarm Payrolls (prior 177K); nonfarm private payrolls (prior 167K); unemployment rate (prior 4.2%); average hourly earnings (prior 0.2%); and avg. workweek (prior 34.3); April Consumer Credit (prior $10.2B)