Bond Market Update
Updated: 27-Jun-25 15:25 ET
Treasury Market Summary
A Soft Finish
- U.S. Treasuries finished a winning week on a softer note, suffering from some late-session selling pressure that was seemingly driven by tariff-related inflation worries after President Trump said the U.S. had ended its talks with Canada due to its 400% tariff on dairy products and digital services tax. The president said in a Truth Social post that the U.S. will let Canada know the tariff it will be paying to do business with the U.S. Prior to that, yields had been somewhat lower, with participants taking in a personal income and spending report for May that featured a 0.3% decline in real PCE, a consumer sentiment report for June showing a drop in inflation expectations, and pre-open reports that there could be 10 trade deals announced soon and that the U.S. and China confirmed their trade framework that should improve rare earth exports from China and a relaxation of restrictions on technology products to China. Separately, the reconciliation bill remains in flux, but there is a possibility of a vote in the Senate this weekend.
- Yield Check:
- 2-yr: +2 bps to 3.74% (-16 bps for the week)
- 3-yr: +3 bps to 3.72% (-14 bps for the week)
- 5-yr: +3 bps to 3.83% (-13 bps for the week)
- 10-yr: +4 bps to 4.29% (-9 bps for the week)
- 30-yr: +3 bps to 4.85% (-4 bps for the week)
- News:
- President Trump terminates trade discussions with Canada due to 400% tariff on dairy products and digital services tax; says "We will let Canada know the tariff that they will be paying to do business with the United States of America"
- President Trump on Wednesday says US signed a trade deal with China; China's Ministry of Commerce confirmed the trade deal framework
- Treasury Secretary Scott Bessent asks "the Senate and House to remove the Section 899 protective measure from consideration in the One, Big, Beautiful Bill"
- Senate Republicans are preparing to stay in town and vote on the reconciliation bill this weekend, but internal disputes and procedural issues might impact that timetable, according to Politico
- Republicans reach deal to raise SALT cap to $40K for a 5 year period as part of reconciliation bill, according to Bloomberg
- Senate hoping to vote on large reconciliation bill this weekend; if they can pass it, the House can then vote before July 4th - CNBC
- Commerce Secretary Howard Lutnick in interview says White House has "imminent" plans to reach trade deals with 10 trading partners, according to Bloomberg
- House plans to vote on stablecoin legislation in two weeks, according to Bloomberg
- Federal Reserve to release results of bank stress tests after the close
- The Bank of England is facing growing pressure to reduce its bond sales due to a concern that the sales are leading to increased borrowing costs
- ECB policymaker Knot said that the central bank might have to keep rates at their current levels for some time, but he would not rule out another rate cut
- China's May Industrial Profit -1.1% YTD (last 1.4%)
- Today's Data:
- Personal income declined 0.4% month-over-month in May (Briefing.com consensus +0.4%) following a downwardly revised 0.7% increase (from 0.8%) in April. Personal spending declined 0.1% (Briefing.com consensus +0.2%) following a 0.2% increase in April. Real personal spending declined 0.3%, which will be a drag on Q2 GDP forecasts.The PCE Price Index increased 0.1% month-over-month, as expected, but the core-PCE Price Index jumped 0.2% month-over-month, which was higher than expected (Briefing.com consensus 0.1%). Those moves left the PCE Price Index up 2.3% year-over-year, versus 2.2% in April, and the core-PCE Price Index up 2.7% year-over-year, versus 2.6% in April.
- The key takeaway from the report is that it has a stagflation aura about it, meaning it is a poor report for the growth outlook and a poor report for the inflation trend. That leaves the Fed between a rock and a hard policy place, yet given the Fed's attention to inflation concerns at this juncture, it seems like a report that will keep the Fed reluctant to cut rates at its July FOMC meeting.
- The final University of Michigan Index of Consumer Sentiment for June edged up to 60.7 (Briefing.com consensus 60.5) from the preliminary reading of 60.5. The final reading for May was 52.2. In the same period a year ago, the index stood at 68.2.
- The key takeaway from the report is that the June survey showed overall improvement in current sentiment, aided by an improved view of personal finances, business conditions, and the inflation outlook that followed the pause on the reciprocal tariff rates (which is due to expire July 9) and the ensuing stock market rally.
- Personal income declined 0.4% month-over-month in May (Briefing.com consensus +0.4%) following a downwardly revised 0.7% increase (from 0.8%) in April. Personal spending declined 0.1% (Briefing.com consensus +0.2%) following a 0.2% increase in April. Real personal spending declined 0.3%, which will be a drag on Q2 GDP forecasts.The PCE Price Index increased 0.1% month-over-month, as expected, but the core-PCE Price Index jumped 0.2% month-over-month, which was higher than expected (Briefing.com consensus 0.1%). Those moves left the PCE Price Index up 2.3% year-over-year, versus 2.2% in April, and the core-PCE Price Index up 2.7% year-over-year, versus 2.6% in April.
- Commodities:
- WTI crude: +0.5% to $65.57/bbl
- Gold: -1.7% to $3292.80/ozt
- Copper: -1.1% to $5.07/lb
- Currencies:
- EUR/USD: flat at 1.1702
- GBP/USD: -0.2% to 1.3699
- USD/CNH: +0.2% to 7.1739
- USD/JPY: +0.2% to 144.68
- The Week Ahead:
- Monday: June Chicago PMI (Briefing.com consensus 43.4; prior 40.5)
- Tuesday: June S&P Global U.S. Manufacturing PMI - Final (prior 52.0); May Construction Spending (Briefing.com consensus -0.2%; prior -0.4%); June ISM Manufacturing Index (Briefing.com consensus 48.8%; prior 48.5%); May JOLTS - Job Openings (prior 7.391 mln)
- Wednesday: MBA Mortgage Applications (prior 1.1%); June ADP Employment Change (Briefing.com consensus 97K; prior 37K); EIA Crude Oil Inventories (prior -5.84M)
- Thursday: June nonfarm payrolls (Briefing.com consensus 120K; prior 139K), nonfarm private payrolls (Briefing.com consensus 123K; prior 140K), unemployment rate (Briefing.com consensus 4.2%; prior 4.2%), avg. hourly earnings (Briefing.com consensus 0.3%; prior 0.4%), and average workweek (Briefing.com consensus 34.3; prior 34.3); May Trade Balance (Briefing.com consensus -$70.5B; prior -$61.6B); Initial Jobless Claims (Briefing.com consensus 240K; prior 236K) and Continuing Jobless Claims (prior 1974K); June S&P Global US Services PMI - Final (prior 53.7); May Factory Orders (Briefing.com consensus 7.9%; prior -3.7%); June ISM Services (Briefing.com consensus 50.3%; prior 49.9%); and EIA Natural gas Inventories (prior +96 bcf)
- Friday: Markets closed for Independence Day holiday