Bond Market Update

Struggling Against Pressure

• U.S. Treasuries edged higher on Friday, but the shallow bounce from Thursday's sharp slide still left yields near levels not seen in at least two weeks. The trading day started with relative strength in shorter tenors after a fairly quiet night that was underscored by anticipation ahead of this weekend's meeting between trade officials from the U.S. and China. The looming meeting prompted speculation about some reduction to the tariff rate on imports from China with President Trump chiming in, saying that an 80% tariff "seems right", but he also said that the decision will be up to Treasury Secretary Bessent, who will take part in tomorrow's meeting. Treasuries climbed off their opening levels during the first two hours of action, but the rest of the morning saw a return to little changed in longer tenors while the 2-yr note gave back the bulk of its morning gain. Treasuries finished the week with modest losses paced by the 10-yr note, which expanded the 2s10s spread by two basis points to 50 bps. Crude oil continued its bounce from Monday's dive toward its April low (55.12), ending the week just above $61/bbl. The U.S. Dollar Index fell 0.3% to 100.35, narrowing this week's gain to 0.3%.
• Yield Check:
  • 2-yr: -1 bp to 3.88% (+4 bps this week)
  • 3-yr: -1 bp to 3.87% (+4 bps this week)
  • 5-yr: -1 bp to 3.99% (+6 bps this week)
  • 10-yr: UNCH at 4.38% (+6 bps this week)
  • 30-yr: UNCH at 4.83% (+3 bps this week)

• News:
  • Westpac now expects the Reserve Bank of New Zealand to make two rate cuts by July.
  • Bank of England Governor Andrew Bailey expressed hope that the U.S.-U.K. accord could serve as a model for improving trade relations with the EU.
  • China's April trade surplus $96.18 bln (expected surplus of $97.00 bln; last surplus of $102.64 bln). April Imports -0.2% yr/yr (expected -5.9%; last -4.3%) and Exports 8.1% yr/yr (expected 1.9%; last 12.4%)
  • Japan's March Household Spending was up 0.4% m/m (expected -0.5%; last 3.5%), rising 2.1% yr/yr (expected 0.2%; last -0.5%). March Overall Wage Income was up 2.1% yr/yr (expected 2.4%; last 2.7%) and March Overtime Pay was down 1.1% yr/yr (last 2.4%). March Leading Index decreased to 107.7 from 107.9 (expected 107.4) and Coincident Indicator was down 1.3% m/m (last 0.9%).
  • South Korea's May Current Account surplus reached $9.14 bln (last surplus of $7.18 bln).
  • Italy's March Industrial Production was up 0.1% m/m (expected 0.4%; last -0.9%) but down 1.8% yr/yr (last -2.6%).
  • Swiss Q2 SECO Consumer Climate fell to -39 from -21 (expected -34).
• Commodities:
  • WTI crude: +1.9% to $61.05/bbl
  • Gold: +1.2% to $3344.70/ozt
  • Copper: +1.3% to $4.65/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1257
  • GBP/USD: +0.5% to 1.3313
  • USD/CNH: UNCH at 7.2393
  • USD/JPY: -0.4% to 145.29
• The Week Ahead:
  • Monday: April Treasury Budget (prior -$160.5 bln) at 14:00 ET
  • Tuesday: April CPI (prior -0.1%) and Core CPI (prior 0.1%) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 11.0%) at 7:00 ET; weekly crude oil inventories (prior -1.11 mln) at 10:30 ET
  • Thursday: April PPI (prior -0.4%), Core PPI (prior -0.1%), April Retail Sales (prior 1.4%), Retail Sales ex-auto (prior 0.5%), May Empire State Manufacturing (prior -8.1), May Philadelphia Fed (prior -26.4), weekly Initial Claims (prior 228,000), and Continuing Claims (prior 1.879 mln) at 8:30 ET; April Industrial Production (prior -0.3%) and Capacity Utilization (prior 77.8%) at 9:15 ET; May Business Inventories (prior 0.2%) and May NAHB Housing Market Index (prior 40) at 10:00 ET; and weekly natural gas inventories (prior +104 bcf) at 10:30 ET
  • Friday: April Housing Starts (prior 1.324 mln) and Building Permits (prior 1.481 mln), April Import Prices (prior -0.1%), Import Prices ex-oil (prior 0.1%), Export Prices (prior 0.0%), and Export Prices ex-agriculture (prior -0.1%) at 8:30 ET; preliminary May University of Michigan Consumer Sentiment (prior 52.2) at 10:00 ET; and March net Long-Term TIC Flows (prior $112.0 bln) at 16:00 ET