Bond Market Update
Updated: 26-Jun-25 15:20 ET
Treasury Market Summary
Front End Leads in Good Day for Treasuries
- U.S. Treasuries had another good outing, having digested a well-received 7-yr note auction and a slate of economic data that included stronger-than-expected durable goods orders for May, lower-than-expected initial jobless claims for the week ending June 21, a widening in the goods deficit in May, a downward revision to Q1 GDP, and higher-than-expected pending home sales for May. Another driver today was a Wall Street Journal report that President Trump is thinking about announcing a replacement for when Fed Chair Powell's term ends in May 2026 by September or October, if not sooner. Notably, the 2-yr note yield was the biggest gainer in today's session, with its yield dropping six basis points to 3.72% in a curve-steepening move. The U.S. Dollar Index was down 0.5% to 97.22.
- Yield Check:
- 2-yr: -6 bps to 3.72%
- 3-yr: -5 bps to 3.69%
- 5-yr: -4 bps to 3.80%
- 10-yr: -4 bps to 4.25%
- 30-yr: -2 bps to 4.82%
- News:
- Multiple Republican senators tell leadership that they are not ready to support the reconciliation bill and want changes to certain provisions, according to Politico
- President Trump considers announcing his selection for 2026 Fed Chair this summer. Kevin Warsh, Scott Bessent, and Christopher Waller are among the contenders, according to The Wall Street Journal
- Senate considering delays Medicaid cuts in large reconciliation bill, according to PunchBowl News
- White House Press Secretary Karoline Leavitt says the July 9 tariff deadline is "not critical"; says President Trump can always "pick a reciprocal tariff rate" for countries that refuse to make deals; asked if deadline could be extended; she said "perhaps", but that is up to President Trump
- EU considers lowering tariffs on a variety of imports in order to secure a trade deal with the Trump administration, according to The Wall Street Journal
- China still dragging out approvals for rare earth exports, according to The Wall Street Journal
- South Korean President Lee warned that the Korean economy is in a desperate situation, adding that bold investment should be made in AI and chips
- Japan's top trade negotiator repeated that he cannot accept a 25% tariff on auto exports to the U.S.
- Bank of Mexico's Governing Board decided to lower the target for the overnight interbank interest rate by 50 basis points to 8.00%
- Germany's July GfK Consumer Climate -20.3 (expected -19.1; last -20.0)
- Today's data:
- Durable goods orders surged 16.4% month-over-month in May (Briefing.com consensus 6.6%) on a 230.8% increase in orders for nondefense aircraft and parts. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.1%).
- The key takeaway, however, is that new orders for nondefense capital goods, excluding aircraft -- a proxy for business spending -- increased 1.7% on the heels of a 1.4% decline in April, reflecting a strong rebound after the reciprocal tariff pause announcement.
- Initial jobless claims for the week ending June 21 decreased by 10,000 to 236,000 (Briefing.com consensus 247,000), while continuing jobless claims for the week ending June 14 increased by 37,000 to 1.974 million, which is the highest level since November 6, 2021.
- The key takeaway from the report is that initial jobless claims -- a leading indicator -- remain entrenched at fairly low levels that are not associated with a recession or even a significant slowdown for that matter, but to be fair, continuing jobless claims are elevated and do point to some softening in the labor market. Businesses may not be laying off a lot of employees, but it has gotten more challenging to find a new job after losing a job.
- The third estimate for Q1 GDP featured a downward revision to -0.5% (Briefing.com consensus -0.2%), from the second estimate of -0.2%, that was driven by downward revisions to consumer spending and exports that were partly offset by a downward revision to imports. The GDP Price Deflator increased to 3.8% (Briefing.com consensus 3.7%) from the second estimate of 3.7%.
- The key takeaway is that this report is very much "dated," given that we are just a few days away from the end of the second quarter, so it shouldn't have much cachet as a mover for a market that has been cheered since early April by the arrival of hard economic data that has quieted recession concerns.
- The Advance International Trade in Goods deficit widened to $96.6 billion in May from -$87.0 billion in April, with exports dropping more than imports. Adv. Retail Inventories increased 0.3% after being unchanged in April, and Adv. Wholesale Inventories fell 0.3% after a 0.1% increase in April.
- May Pending Home Sales +1.8% (Briefing.com consensus 0.4%; prior -6.3%)
- The $44 bln 7-yr note sale, which met strong demand with the high yield (4.022%) stopping through the when-issued yield (4.024%) by 0.2 basis points. The bid-to-cover ratio (2.53x) was a bit below average (2.61x), but indirect takedown (76.7%) was well above average (69.9%), reflecting strong foreign interest.
- Durable goods orders surged 16.4% month-over-month in May (Briefing.com consensus 6.6%) on a 230.8% increase in orders for nondefense aircraft and parts. Excluding transportation, durable goods orders were up 0.5% month-over-month (Briefing.com consensus 0.1%).
- Commodities:
- WTI crude: +0.6% to $65.24/bbl
- Gold: -0.2% to $3348.10/ozt
- Copper: +3.0% to $5.12/lb
- Currencies:
- EUR/USD: +0.5% to 1.1716
- GBP/USD: +0.6% to 1.3742
- USD/CNH: -0.1% to 7.1619
- USD/JPY: -0.6% to 144.27
- The Day Ahead:
- 08:30 ET: May Personal Income (Briefing.com consensus 0.4%; prior 0.8%), Personal Spending (Briefing.com consensus 0.2%; prior 0.2%), PCE Price Index (Briefing.com consensus 0.1%; prior 0.1%), and core-PCE Price Index (Briefing.com consensus 0.1%; prior 0.1%)
- 10:00 ET: June Univ. of Michigan Consumer Sentiment - Final (Briefing.com consensus 60.5; prior 52.2)