Bond Market Update

Longer Tenors Resist Intraday Pressure

• U.S. Treasuries finished Thursday on a mostly higher note, though intraday action saw a pullback in shorter tenors while the long end outperformed, hanging onto the bulk of today's starting gains. Treasuries were off to a higher start across the curve after a night of intense media focus on President Trump's visit to China. The first day of meetings with Chinese leadership was described as positive and China's President Xi was invited for a State visit to the U.S. in September. The visit will continue Friday before the U.S. government and business delegation led by President Trump heads back to Washington. Shorter tenors began dipping from their starting highs in morning trade, while 10s and 30s held their ground until the afternoon when they also dipped from their best levels, but stayed out of the red. Economic data released today was largely in-line with expectations, as Retail Sales grew 0.5% in April (Briefing.com consensus 0.4%) while Initial Claims rose back above the 200,000 mark. Crude oil stayed just above $101/bbl while the U.S. Dollar Index rose 0.3% to 98.83.
• Yield Check:
  • 2-yr: UNCH at 3.99%
  • 3-yr: UNCH at 4.03%
  • 5-yr: -1 bp to 4.12%
  • 10-yr: -2 bps to 4.46%
  • 30-yr: -4 bps to 5.01%

• News:
  • Fed Governor Miran submitted his resignation from the Federal Reserve Board. He will step down once a successor is ready to assume his post. 
  • Japan sold 30-yr JGBs to solid demand.
  • Bank of Japan policymaker Masu said that a rate hike should happen as quickly as possible.
  • South Korea's President Lee requested a bilateral currency swap line with the U.S. Treasury.
  • European Central Bank policymaker Kazaks said that the full impact of the Iran war on inflation is not visible yet and that the situation is a bit worse than the ECB's baseline scenario.
  • British Prime Minister Starmer could face an imminent leadership challenge, according to reports.
  • China's April New Loans were down CNY10.0 bln (expected CNY320.0 bln; last CNY2.99 trln), April outstanding loans grew 5.6% yr/yr (expected 5.8%; last 5.8%), and April total social financing reached CNY620.0 bln (expected CNY1.50 trln; last CNY5.23 trln).
  • Japan's April M2 Money Stock was up 2.3% yr/yr (expected 1.9%; last 2.0%).
  • India's April WPI Inflation was up 8.30% yr/yr (expected 4.40%; last 3.88%).
  • U.K.'s Q1 GDP expanded 0.6% qtr/qtr, as expected (last 0.2%), growing 1.1% yr/yr (expected 0.8%; last 1.0%).
  • Spain's April CPI was up 0.4% m/m, as expected (last 1.2%), rising 3.2% yr/yr, as expected (last 3.4%). April Core CPI was up 2.8% yr/yr, as expected (last 2.9%).
• Today's Data:
  • Total retail sales increased 0.5% month-over-month in April (Briefing.com consensus: 0.4%) following a downwardly revised 1.6% increase (from 1.7%) in March. Excluding autos, retail sales rose 0.7% month-over-month (Briefing.com consensus: 0.4%) after increasing 1.9% in March.
    • The key takeaway from the report is that solid spending activity was seen across most retail categories in April, which is when consumers were digesting the gas price shock from the Iran war. Excluding auto and gasoline station sales, retail sales were up 0.5% month-over-month.
  • Initial jobless claims for the week ending May 9 increased by 12,000 to 211,000 (Briefing.com consensus: 208,000). Continuing jobless claims for the week ending May 2 increased by 24,000 to 1.782 million.
    • The key takeaway from the report is that, even though initial and continuing jobless claims were up in the latest week, neither has risen to a level that would ring alarm bells about a serious deterioration in the labor market. There were some inflation alarm bells ringing in the import-export price index, however.
  • Import prices were up 1.9% month-over-month, leaving them up 4.2% year-over-year. Excluding fuel, import prices rose 0.8% month-over-month and were up 2.9% year-over-year. Export prices jumped 3.3% month-over-month, leaving them up 8.8% year-over-year. Excluding agricultural products, export prices advanced 3.4% month-over-month and were up 9.3% year-over-year.
  • Business Inventories increased by 0.9% in March (Briefing.com consensus 0.3%) after increasing by 0.4% in February.
  • Weekly natural gas inventories increased by 85 bcf after increasing by 63 bcf a week ago.
• Commodities:
  • WTI crude: +0.2% to $101.16/bbl
  • Gold: -0.5% to $4683.60/ozt
  • Copper: -0.9% to $6.61/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1678
  • GBP/USD: -0.8% to 1.3407
  • USD/CNH: UNCH at 6.7856
  • USD/JPY: +0.2% to 158.18
• The Day Ahead:
  • 8:30 ET: May Empire State Manufacturing survey (Briefing.com consensus 6.2; prior 11.0)
  • 9:15 ET: April Industrial Production (Briefing.com consensus 0.2%; prior -0.5%) and Capacity Utilization (Briefing.com consensus 75.7%; prior 75.7%)