Bond Market Update

Updated: 18-Jun-25 15:14 ET
Treasury Market Summary

A Fed-induced Hiccup

  • U.S. Treasuries found a safe-haven bid overnight, with concerns about the Israel-Iran conflict dictating the action. Buying efforts faded somewhat in the cash session, as President Trump indicated there is still time for Iran to negotiate. However, that view was counterbalanced by an observation that Iran cannot have a nuclear weapon and that late this week or next week will be "big." The trading action was also stifled following the receipt of some mixed economic data and ahead of the FOMC decision and release of the Summary of Economic Projections (SEP) at 2:00 p.m. ET. Selling efforts picked up in response to the SEP, which showed no change in the median estimate for two rate cuts by the end of 2025, but also a disappointing median estimate that conveyed a lower outlook for real GDP growth and a higher outlook for PCE inflation in 2025 than what was seen with the March projection. In fact, the selling activity wiped out the overnight gains. Yields settled close to yesterday's settlement levels but well off their lows of the day. Separately, the U.S. Dollar Index (+0.2% to 98.98) reversed course in the wake of the Fed news, pivoting from a point of weakness to a point of relative strength.
  • Yield check:
    • 2-yr: unch at 4.95%
    • 3-yr: unch at 3.90%
    • 5-yr: +2 bps to 4.00%
    • 10-yr: +1 bp to 4.40%
    • 30-yr: +1 bp to 4.90%
  • News:
    • White House officials say the next 24-48 hours are critical to determine if a diplomatic solution with Iran is possible or if President Trump will order U.S. military action against Iran, according to ABC News
    • President Trump is moving away from diplomacy and toward U.S. involvement in Iran, according to Politico
    • President Trump considering a range of options, including US strike against Iran, according to WSJ
    • Iran preparing missiles for strikes on U.S. bases if U.S. enters the war. Iran could also mine the Strait of Hormuz, according to NY Times
    • FOMC votes unanimously to leave fed funds rate target unchanged at 4.25-4.50%; dot plot still projects two rate cuts by end of 2025; Fed raises PCE inflation estimate and lowers real GDP growth estimate for 2025
    • President Trump spoke with Israeli Prime Minister Benjamin Netanyahu, according to Axios
    • A military official from Israel says it could strike the Fordow nuclear site on its own, according to WSJ
    • Senate Majority Leader John Thune wants to vote on large reconciliation bill next week, but negotiations among members with disagreements are continuing, according to Politico
    • Senate passes legislation that establishes a regulatory framework for stablecoins. The legislation now heads to the House where Republicans are considering changes, according to Politico
    • The Trump administration aiming to ease capital rule involving Treasury trading, according to Bloomberg
    • Fitch says U.S. fiscal outlook remains challenging despite near-term revenue boost
    • Mexico President Claudia Sheinbaum Pardo says "I had a very good phone conversation with President Trump, who informed me that he left urgently yesterday due to the situation in the Middle East. We agreed to work together to soon reach an agreement on various issues that concern us today"
    • Japan's Prime Minister Ishiba said that he will seek a trade deal with the U.S. "until the final minute," adding that auto imports are a big point of disagreement
    • MBA Mortgage Applications INdex -2.6% wk/wk, with refinance applications down 2% and purchase applications down 3%
    • Sweden's Riksbank lowered its policy rate by 25 basis points to 2.00%
    • The Bank of England will announce its latest policy decision tomorrow, though a rate cut is not expected
  • Today's data:
    • Initial jobless claims for the week ending June 14 decreased by 5,000 to 245,000 (Briefing.com consensus 253,000), while continuing jobless claims for the week ending June 7 decreased by 6,000 to 1.945 million.
      • The key takeaway from the report is that it covers the week in which the survey for the June employment report is conducted, and with initial jobless claims still at a relatively low level, there will be a basis for economists to expect another decent gain in nonfarm payrolls (all things considered).
    • Housing starts declined 9.8% month-over-month in May to a seasonally adjusted annual rate of 1.256 million units (Briefing.com consensus 1.356 million), while building permits declined 2.0% month-over-month to a seasonally adjusted annual rate of 1.393 million (Briefing.com consensus 1.411 million).
      • The key takeaway from the report is that housing starts are weak, sitting at their lowest level since May 2020; moreover, a 2.7% month-over-month decline in single-unit permits doesn't connote an encouraging outlook for starts.
  • Commodities:
    • WTI crude: +0.4% to $73.56/bbl
    • Gold: +0.04% to $3408.20/toz
    • Copper: +0.8% to $4.85/lb
  • Currencies:
    • EUR/USD: -0.2% to 1.1463
    • GBP/USD: -0.3% to 1.3407
    • USD/CNH: +0.1% to 7.1957
    • USD/JPY: -0.1% to 145.15
  • The Day Ahead (Friday, June 20):
    • 08:30 ET: June Philadelphia Fed Index (Briefing.com consensus 0.3; prior -4.0)
    • 10:00 ET: May Leading Indicators (Briefing.com consensus -0.1%; prior -1.0%)
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