Bond Market Update

 Treasuries Slide as Oil Climbs

• U.S. Treasuries are on track for a lower start with longer tenors set to pace the early selling after a night that saw general weakness in sovereign debt with South Korea's 10-yr yield rising to a fresh high for the year (+16 bps to 4.25%) amid worries about a potential employee strike at Samsung Electronics, though the employee union indicated willingness to push talks back to early June. JGB yields also reached fresh highs for the year with the 10-yr yield rising to a level not seen in nearly 30 years even though Finance Minister Katayama said that an extra budget will not be needed this year. As for Treasury futures, they retreated steadily through the night, reaching lows about two hours ago. Fittingly, G-7 finance ministers will meet in France this weekend to discuss global bond volatility. On a side note, the fed funds futures market is now entertaining the possibility of a 25-basis point rate hike in January. President Trump is on his way back from China, fueling speculation that the pressure campaign on Iran could resume as soon as he returns to Washington. Crude oil has climbed toward $104/bbl after marking an overnight high near $105/bbl while the U.S. Dollar Index is up 0.3% at 99.16.
• Yield Check:
  • 2-yr: +6 bps to 4.05%
  • 3-yr: +7 bps to 4.10%
  • 5-yr: +8 bps to 4.20%
  • 10-yr: +8 bps to 4.54%
  • 30-yr: +8 bps to 5.09%

• News:
  • Fed Chairman Powell's term ends today.
  • U.S. Trade Representative Greer said that discussions about rare-earth materials with China went ok as President Trump wrapped up his visit to Beijing. Some CEOs that accompanied the president stayed behind to continue business discussions.
  • British Prime Minister Starmer may face a leadership challenge from Andy Burnham, who is the mayor of Greater Manchester. However, Mr. Burnham is not in parliament, so he would first need to win a special election to fill a vacant seat created by the resignation of a Labour MP.
  • The European Central Bank's latest economic bulletin acknowledged the increase in energy costs due to the conflict in Iran, noting that households and firms are becoming more reluctant to consume and invest.
  • Japan's April PPI was up 2.3% m/m (expected 0.7%; last 1.0%), rising 4.9% yr/yr (expected 3.0%; last 2.9%). April Machine Tool Orders were up 45.1% yr/yr (expected 28.1%; last 24.2%).
  • South Korea's April Import Prices Index was up 20.2% yr/yr (last 20.4%), jumping 40.8% yr/yr (last 29.5%).
  • Hong Kong's Q1 GDP expanded 2.9% qtr/qtr, as expected (last 1.0%), growing 5.9% yr/yr, as expected (last 3.8%).
  • India's April trade deficit reached $28.38 bln (expected deficit of $27.00 bln; last deficit of $20.67 bln).
  • New Zealand's April Business PMI hit 50.5 (last 52.8) and April Food Price Index was unchanged m/m (last -0.6%).
  • Italy's April CPI was up 1.1% m/m (expected 1.2%; last 0.5%), rising 2.7% yr/yr (expected 2.8%; last 1.7%).
• Commodities:
  • WTI Crude: +2.9% to $104.12/bbl
  • Gold: -2.7% to $4557.40/ozt
  • Copper: -4.2% to $6.331/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1633
  • GBP/USD: -0.3% to 1.3363
  • USD/CNH: +0.3% to 6.8079
  • USD/JPY: +0.2% to 158.54
• Data out Today:
  • 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%)