Bond Market Update

Pressure Persists as Oil Rally Continues

• U.S. Treasuries saw a continuation of Monday's poor start to the week, resulting in the highest settlement for the 30-yr yield in nearly a year while yields on 10s and shorter tenors also finished at levels from last May, though they remained below their intraday highs from late March. The market faced pressure from the start with shorter tenors leading to the downside after crude oil climbed back above $100/bbl overnight. Oil climbed past $102/bbl as the day went on, resulting in pressure on stocks and bonds. The market received the April CPI report this morning, which matched expectations at the headline and core levels, showing an acceleration in year-over-year rates for CPI and core CPI to 3.8% and 2.8%, respectively. The complex extended its losses during the final couple hours of action after the U.S. Treasury followed yesterday's weak 3-yr note offering with a poor $42 bln 10-yr note sale. Other sovereign debt also retreated today with the U.K.'s 10-yr Gilt yield rising past this year's high to a level not seen since 2008 amid growing expectations for looser fiscal policy from the next government. However, while the market is already looking ahead, Prime Minister Starmer has continued digging in his heels despite more than 110 Labour MPs signing a joint statement calling for his resignation. The U.S. Dollar Index rose 0.4% to 98.31.
• Yield Check:
  • 2-yr: +5 bps to 4.00%
  • 3-yr: +6 bps to 4.03%
  • 5-yr: +6 bps to 4.12%
  • 10-yr: +5 bps to 4.46%
  • 30-yr: +5 bps to 5.03%

• News:
  • The U.S. Senate confirmed Kevin Warsh as a member of the Board of Governors of the Federal Reserve, ahead of his expected confirmation as Fed Chairman.
  • Treasury Secretary Bessent met with top Japanese officials today, repeating that excess volatility in currency markets is undesirable.
  • South Korea's policy chief said that a dividend should be paid to citizens from taxes on AI profits.
  • The Bank of Japan's Summary of Opinions from the April meeting showed that most policymakers remain open to a hike, but the timing of the next increase has become more uncertain.
  • Alphabet (GOOG) will sell yen-denominated bonds with different tenors in multiple tranches.
  • European Central Bank policymaker Nagel repeated that the base scenario calls for two rate hikes from the central bank.
  • Japan's March Household Spending was down 1.3% m/m (expected 0.6%; last 1.5%), falling 2.9% yr/yr (expected -1.4%; last -1.8%). March Leading Index rose to 114.5 from 113.2 (expected 114.4) and Coincident Indicator was up 0.3% m/m (last -1.7%).
  • Australia's April NAB Business Survey fell to 3 from 6 and NAB Business Confidence rose to -24 from -29.
  • India's April CPI was up 3.48% yr/yr (expected 3.80%; last 3.40%).
  • Eurozone's May ZEW Economic Sentiment rose to -9.1 from -20.4 (expected -21.6).
  • Germany's April CPI was up 0.6% m/m, as expected (last 1.1%), rising 2.9% yr/yr, as expected (last 2.7%). May ZEW Economic Sentiment rose to -10.2 from -17.2 (expected -19.2) and ZEW Current Conditions fell to -77.8 from -73.7 (expected -77.5).
  • Italy's March Industrial Production was up 0.7% m/m (expected 0.2%; last 0.2%), rising 1.5% yr/yr (last 0.4%).
  • Swiss April PPI was up 0.8% m/m (expected 0.4%; last 0.2%) but down 2.0% yr/yr (last -2.7%).
• Today's Data:
  • Total CPI increased 0.6% month-over-month in April, as expected, following a 0.9% increase in March. That left total CPI up 3.8% year-over-year versus 3.3% in March. Core CPI, which excludes food and energy, jumped 0.4% month-over-month (Briefing.com consensus: 0.4%) following a 0.2% increase in March. That left core CPI up 2.8% year-over-year versus 2.6% in March.
    • The key takeaway from the report is the elevated inflation readings, which are well above the Fed's 2.0% inflation target and a signal not to expect a rate cut anytime soon.
  • The Treasury Department reported a $215.0 billion surplus for April (Briefing.com consensus: $202.5 bln), which was $43 billion less than the surplus reported for April 2025. Receipts totaled $837.3 billion, while outlays reached $622.3 billion.
    • The key takeaway from the report is the recognition that a healthy level of tax receipts helped fuel a narrowing in the fiscal year-to-date deficit versus the year-ago period. Moreover, the deficit for the 12-month period ending in April is down 16% from the same period a year ago.
  • The NFIB Small Business Optimism Index rose to 95.9 in April (Briefing.com consensus 96.1) from 95.8 in March.
  • $42 bln 10-year Treasury note auction results (prior 12-auction average): 
    • High yield: 4.468% (4.219%).
    • Bid-to-cover: 2.40 (2.50).
    • Indirect bid: 64.0% (69.4%).
    • Direct bid: 24.1% (20.6%).
• Commodities:
  • WTI crude: +4.3% to $102.30/bbl
  • Gold: -0.6% to $4686.60/ozt
  • Copper: -1.1% to $6.53/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1741
  • GBP/USD: -0.5% to 1.3534
  • USD/CNH: UNCH at 6.7918
  • USD/JPY: +0.3% to 157.58
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -4.4%)
  • 8:30 ET: April PPI (Briefing.com consensus 0.4%; prior 0.5%) and Core PPI (Briefing.com consensus 0.3%; prior 0.1%)
  • 10:30 ET: Weekly crude oil inventories (prior -2.31 mln)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results