Bond Market Update

Tariff Talk

• U.S. Treasuries were weaker in overnight action, with inflation concerns presumably behind the selling after President Trump indicated Canada will face a 35% tariff on August 1 on imports not covered under USMCA, that most trading partners will have a 15-20% tariff rate, and that the EU will be getting a tariff letter. There hasn't been more fallout, however, because the market still continues to view all of this as a point of negotiating leverage. Nonetheless, with the threat of such tariff increases looming, market participants also recognize that the Fed is going to have more reason to stick with its wait-and-see mindset. The U.S. Dollar Index is up 0.1% to 97.78.
• Yield Check:
  • 2-yr: +2 bps to to 3.89%
  • 3-yr: +2 bps to 3.86%
  • 5-yr: +2 bps to 3.96%
  • 10-yr: +4 bps to 4.39%
  • 30-yr: +5 bps to 4.92%

• News:
  • President Trump says he will impose 35% tariff on Canadian imports not covered under USMCA terms, beginning August 1st (current tariffs on Canadian imports are at 25%)
  • President Trump, in a phone interview with NBC's Kristen Welker, says most trading partners will face tariffs between 15-20% and EU will get tariff letter today
  • President Trump said he will make "major statement" on Russia on Monday, according to NBC News
  • President Trump is reportedly planning weapons sales to NATO allies that would then be forwarded to Ukraine
  • Secretary of State Marco Rubio met with his Chinese counterpart, which could foreshadow a summit between President Trump and Chinese President Xi, according to Bloomberg
  • A South Korean official said that the U.S. has demanded that South Korea join an effort to isolate China
  • A People's Bank of China official has called for $209 bln in stimulus spending to offset the impact of tariffs
  • White House OMB Director Russ Vought says Fed Chairman Jerome Powell "has grossly mismanaged the Fed. While continuing to run a deficit since FY23, the Fed is way over budget on the renovation of its headquarters"
  • ECB policymakers Schnabel and Panetta said that the central bank is in a good position to wait and see before its next policy move
  • IEA says world oil demand growth is forecast to increase by 700 kb/d in 2025, its lowest rate since 2009, with the exception of the 2020 Covid year
  • May UK GDP (month/month) -0.1% versus -0.3% prior
• Commodities:
  • WTI crude: +1.1% to $67.32/bbl
  • Gold: +1.0% to $3359.40/ozt
  • Copper: -1.7% to $5.50/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1691
  • GBP/USD: -0.4% to 1.3518
  • USD/CNH: -0.1% to 7.1675
  • USD/JPY: +0.5% to 146.92
• The Day Ahead:
  • 14:00 ET: June Treasury Budget (Briefing.com consensus: -$257.5B; prior -$316.0B)