Bond Market Update

Market on Its Heels

• U.S. Treasuries were under pressure throughout today's trade, with tariff concerns seemingly driving the action. News of a 35% tariff rate for Canada starting August 1, word that the EU will be getting a tariff letter, and the president's acclamation that most trading partners will face a 15% to 20% tariff rate had the market on its heels, beginning in the overnight trade. Today saw the more inflation-sensitive back end of the curve underperform, rounding out a week of curve-steepening action. The front end was undercut by some ruminations that all the announcements of higher tariff rates starting August 1 could leave the Fed in a sticky wait-and-see mode. The U.S. Dollar Index was up 0.2% to 97.87.
• Yield Check:
  • 2-yr: +4 bps to to 3.91% (+3 bps for the week)
  • 3-yr: +4 bps to 3.88% (+4 bps for the week)
  • 5-yr: +5 bps to 3.99% (+5 bps for the week)
  • 10-yr: +7 bps to 4.42% (+8 bps for the week)
  • 30-yr: +9 bps to 4.96% (+10 bps for the week)

• 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
  • President Trump speaking with reporters says at some point he will talk with Brazil; says Canada called after they received tariff letter; says he will not fire Fed Chairman Jerome Powell
  • Chicago Fed President Austan Goolsbee (voting FOMC member) says recent tariff threats could delay rate cuts, according to WSJ interview
  • 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
  • Brazilian President Luiz Inácio Lula da Silva says U.S. does not run a trade deficit with Brazil; says he will fight for tariffs not to take effect, but if they do go into effect, he will retaliate, according to CNBC
  • EU abandoned plans to levy a tax on digital companies, a victory for President Trump and US technology firms, according to Politico
  • 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
• Today's Data:
  • The Treasury Budget for June showed a surprising surplus of $27.0 billion (Briefing.com consensus: -$257.5B) compared to a deficit of $71.0 billion in the same period a year ago. The June surplus resulted from receipts ($526 billion) exceeding outlays ($499 billion). The Treasury Budget data are not seasonally adjusted, so the June surplus cannot be compared to the May deficit of $315.7 billion.
    • The key takeaway from the report is that it showed an actual surplus, with receipts exceeding outlays. The good news is that the deficit over the last 12 months shrunk from $1.994 trillion in May to $1.896 trillion in June. The bad news is that the deficit over the last 12 months is still $1.896 trillion.
• Commodities:
  • WTI crude: +2.8% to $68.43/bbl
  • Gold: +1.2% to $3363.80/ozt
  • Copper: +0.2% to $5.60/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1686
  • GBP/USD: -0.4% to 1.3518
  • USD/CNH: flat at 7.1741
  • USD/JPY: +0.8% to 147.42
• The Week Ahead:
  • Monday: There is no economic data of note
  • Tuesday: June CPI (prior 0.1%) and Core CPI (prior 0.1%); June Empire State Manufacturing (prior -16.0); Fed's Bowman speaks, Fed's Barr speaks, Fed's Barkin speaks, Fed's Collins speaks, Fed's Logan speaks
  • Wednesday: MBA Mortgage Applications Index (prior 9.4%); June PPI (prior 0.1%) and Core PPI (prior 0.1%); June Industrial Production (prior -0.2%) and Capacity Utilization (prior 77.4%); EIA Crude Oil Inventories (prior +7.07M); Fed's Beige Book; Fed's Barkin speaks, Fed's Hammack speaks, Fed's Barr speaks, Fed's Williams speaks
  • Thursday: June Retail Sales (prior -0.9%) and Retail Sales Ex-Auto (prior -0.3%); Initial Jobless Claims (prior 227K) and Continuing Jobless Claims (prior 1965K); June Import Prices (prior 0.0%) and Nonfuel Import Prices (prior 0.3%); June Export Prices (prior -0.9%) and Non-agricultural Prices (prior -1.0%); July Philadelphia Fed Index (prior -4.0); July NAHB housing Market Index (prior 32); May Business Inventories (prior 0.0%); EIA Natural Gas Inventories (prior +53 bcf); May Net LT TIC Flows (prior -$7.8B); Fed's Kugler speaks, Fed's Daly speaks, Fed's Cook speaks, Fed's Waller speaks
  • Friday: June Housing Starts (prior 1256K) and Building Permits (prior 1393K); July Preliminary Univ. of Michigan Consumer Sentiment (prior 60.7)