Bond Market Update

Sliding Oil Fuels Midweek Rally

• U.S. Treasuries had a strong showing on Wednesday, building on their modest Tuesday bounce. The midweek rally, which was fueled by growing hopes for an imminent conclusion to the conflict with Iran, pressured yields across the curve to one-week lows as crude oil also fell to its lowest level in a week. The cash market recorded the bulk of its advance at the open, followed by a daylong sideways drift near highs. The upbeat start followed President Trump's decision to suspend U.S. naval escorts through the Strait of Hormuz due to progress in negotiations that could result in a deal soon. Crude oil was down as much as $13/bbl at today's low but recovered roughly half of that loss after Iran's spokesman reportedly said that Washington's wish list is unrealistic, but that did not prevent Treasuries from finishing on highs and equity indices extending into record territory as the day went on. The U.S. Treasury released its quarterly refunding statement this morning, announcing next week's note and bond auctions to fulfill the additional funding needs. That said, the Treasury repeated that it intends to keep its monthly auction sizes steady for the next few quarters, which should give the market a sense of stability about supply in the near term. Crude oil settled about $2/bbl above its 50-day moving average (93.27) while the U.S. Dollar Index fell 0.4% to 98.03.
• Yield Check:
  • 2-yr: -7 bps to 3.87%
  • 3-yr: -8 bps to 3.89%
  • 5-yr: -7 bps to 4.00%
  • 10-yr: -6 bps to 4.36%
  • 30-yr: -4 bps to 4.94%

• News:
  • China called on the U.S. to drop the Section 301 investigation into China's excess capacity ahead of President Trump's upcoming meeting with President Xi.
  • France's President Macron is expected to name Emmanuel Moulin to succeed outgoing Bank of France Governor Villeroy de Galhau. Mr. Moulin previously served as secretary general to the president.
  • Bank of England Governor Bailey said that investors should be mindful of risks associated with private credit.
  • China's April RatingDog Services PMI 52.6 (expected 52.0; last 52.1)
  • South Korea's April CPI 0.5% m/m, as expected (last 0.3%); 2.6% yr/yr, as expected (last 2.2%)
  • Hong Kong's April Manufacturing PMI 48.6 (last 49.3) and March Retail Sales 12.8% yr/yr (last 19.3%)
  • New Zealand's Q1 Employment Change increased 0.2% qtr/qtr (expected 0.3%; last 0.5%) and Q1 Labor Cost Index was up 0.5% qtr/qtr (expected 0.4%; last 0.4%). Q1 Unemployment Rate fell to 5.3% from 5.4% (expected 5.4%) and Participation Rate dipped to 70.4% from 70.5% (expected 70.5%). April AIG Construction Index rose to -19.3 from -57.1 and AIG Manufacturing Index rose to -27.9 from -28.6.
  • India's April Services PMI hit 58.8 (expected 57.9; last 57.5).
  • Eurozone's April Services PMI hit 47.6 (expected 47.4; last 50.2). March PPI was up 3.4% m/m (expected 3.3%; last -0.6%), rising 2.1% yr/yr (expected 1.8%; last -3.0%).
  • Germany's April Services PMI hit 46.9, as expected (last 50.9).
  • U.K.'s April Services PMI hit 52.7 (expected 52.0; last 50.5).
  • France's March Industrial Production rose 1.0% m/m (expected 0.5%; last -0.9%). April Services PMI hit 46.5, as expected (last 48.8).
  • Italy's April Services PMI hit 49.8 (expected 47.9; last 48.8). March Retail Sales rose 0.8% m/m (expected -0.4%; last -0.1%), increasing 3.7% yr/yr (last 1.6%).
  • Spain's April Services PMI hit 47.9 (expected 51.9; last 53.3).
• Today's Data:
  • The ADP Employment Change report pointed to the addition of 109,000 nonfarm payrolls in April while the March reading was revised down to 61,000 from 62,000.
  • The weekly MBA Mortgage Index fell 4.4% to follow last week's 1.6% decrease. The Refinance Index fell 5.0% while the Purchase Index was down 3.7%.
  • Weekly crude oil inventories decreased by 2.313 million barrels after decreasing by 6.234 million barrels a week ago.
• Commodities:
  • WTI crude: -6.8% to $95.22/bbl
  • Gold: +2.7% to $4693.80/ozt
  • Copper: +3.3% to $6.19/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1753
  • GBP/USD: +0.4% to 1.3596
  • USD/CNH: -0.2% to 6.8112
  • USD/JPY: -0.9% to 156.38
• The Day Ahead:
  • 8:30 ET: Preliminary Q1 Productivity (Briefing.com consensus 1.8%; prior 1.8%) and preliminary Q1 Unit Labor Costs (Briefing.com consensus 2.7%; prior 4.4%), weekly Initial Claims (Briefing.com consensus 205,000; prior 189,000), and Continuing Claims (prior 1.785 mln)
  • 10:00 ET: February Construction Spending (Briefing.com consensus 0.2%; prior -0.3%) and March Construction Spending (Briefing.com consensus 0.4%; prior NA)
  • 10:30 ET: weekly natural gas inventories (prior +79 bcf)
  • 15:00 ET: March Consumer Credit (Briefing.com consensus $12.5 bln; prior $9.5 bln)