Bond Market Update

Yields Drifting Lower

• U.S. Treasuries had a line on lower yields in the overnight trade, but that line got cut in the cash session as participants reacted to a comment from Fed Chair Powell, who said the Fed would have likely cut rates already if not for the size of the tariffs, and some halting economic data that included a sizable increase in the number of job openings in May and the continuation of an elevated price index within the ISM Manufacturing Index for June. Additionally, the Senate passed its version of the "One Big, Beautiful Bill" in a 51-50 vote that required Vice President Vance's vote to be the tiebreaking vote. It was reported by Bloomberg TV late in the day that the president is not thinking about extending the tariff pause past July 9; the president also noted that he doubts the U.S. will make a deal with Japan. The front end led today's losses in a curve-flattening trade.
• Yield Check:
  • 2-yr: +5 bps to 3.77%
  • 3-yr: +6 bps to 3.74%
  • 5-yr: +5 bps to 3.84%
  • 10-yr: +2 bps to 4.25%
  • 30-yr: unch at 4.78%

• News:
  • Senate passes its version of "One Big, Beautiful Bill" 51-50, with VP Vance casting the tiebreaker vote
    • The bill includes extension of 2017 tax cuts, spending cuts (Medicaid and green energy spending), deregulation, energy reform, immigration reform, and a debt ceiling increase of $5 trillion
  • House Majority Whip Tom Emmer says House will begin debate on One Big Beautiful Bill tomorrow at 9:00 ET; vote will occur after debate ends
  • The Trump administration is considering making narrower trade deals to avoid imposing new tariffs on July 9, according to FT
  • President Trump is not thinking about extending tariff pause past July 9 - BloombergTV
  • President Trump doubts we'll make a deal with Japan - BloombergTV
  • Elon Musk says he will work to keep any GOP member who campaigned on cutting government spending and then votes for "One Big, Beautiful Bill" from winning their primary; calls for new political party
  • Trump administration plans to prioritize India over Japan in tariff talks ahead of July 9 deadline, according to Nikkei
  • Atlanta Fed lowers Q2 GDP forecast to 2.5% versus previous estimate of 2.9%
  • ECB policymaker Simkus said that the central bank is unlikely to make any changes to rates until later in the year, while policymaker de Guindos said that the current euro exchange rate is perfectly acceptable
  • Eurozone's flash June CPI 0.3% m/m (last 0.0%); 2.0% yr/yr, as expected (last 1.9%)
  • China's June Caixin Manufacturing PMI 50.4 (expected 49.2; last 48.3)
• Today's Data:
  • The June ISM Manufacturing Index increased to 49.0% in June (Briefing.com consensus 48.8%) from 48.5% in May. The dividing line between expansion and contraction is 50.0%, so the June reading suggests that activity in the manufacturing sector contracted at a slightly slower pace than the prior month.
    • The key takeaway from the report is that it has more of a stagflation aura about it (the new orders index and employment index both contracted at a faster pace, while the prices index increased at a faster pace) that will make the Fed's policy deliberations more challenging and the market's view of the Fed's thinking more frustrating.
  • Total construction spending decreased 0.3% month-over-month in May (Briefing.com consensus -0.2%) after an upwardly revised 0.2% decline (from -0.4%) in April. Total private construction was down 0.5% month-over-month, while total public construction was up 0.1% month-over-month. On a year-over-year basis, total construction spending was down 3.5%.
    • The key takeaway from the report is the same as the prior month: a downturn in new single-family construction, which is being pressured by higher costs, was the driver behind the weakness in residential spending.
  • May JOLTS - Job Openings increased to 7.769 million from an upwardly revised 7.395 million (from 7.391 million). The increase in job openings connotes a labor market that is still on relatively sound footing, which would leave the Fed reluctant to cut rates if inflationary pressures aren't contained.
  • June S&P Global U.S. Manufacturing PMI - Final (Actual 52.9; prior 52.0)
• Commodities:
  • WTI crude: +0.5% to $65.44/bbl
  • Gold: +1.3% to $3350.10/ozt
  • Copper: +0.4% to $5.10/lb
• Currencies:
  • EUR/USD: flat at 1.1783
  • GBP/USD: +0.1% to 1.3740
  • USD/CNH: +0.1% to 7.1619
  • USD/JPY: -0.3% to 143.61
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior 1.1%)
  • 08:15 ET: June ADP EMployment Change (Briefing.com consensus 97K; prior 37K)
  • 10:30 ET: EIA Crude Oil Inventories (prior -5.84M)