Bond Market Update

Two-Day Streak Snapped as Oil Finds Support

• U.S. Treasuries tried to extend their midweek rally, but some early resistance invited an intraday pullback from two days of gains. Treasuries got off to a modestly higher start, thanks in large part to an overnight retreat in the price of oil. However, oil reversed sharply after a brief dip below $90/bbl, rising toward $95/bbl as Treasuries backed down from their opening highs. The higher start briefly pressured yields on 10s and 30s back to their starting levels from last Monday, but subsequent selling pressure had the market on its back foot as oil bounced. Economic data released this morning showed smaller-than-expected nonfarm productivity and unit labor cost growth in Q1 while Initial Claims remained at a low level. Today's selling lifted yields toward their lows from Tuesday with the 10-yr yield now up a basis point for the week. The U.S. Dollar index spent the day near its unchanged level at 98.02, just above a three-month low.
• Yield Check:
  • 2-yr: +5 bps to 3.92%
  • 3-yr: +6 bps to 3.95%
  • 5-yr: +4 bps to 4.04%
  • 10-yr: +4 bps to 4.39%
  • 30-yr: +3 bps to 4.97%

• News:
  • Top Japanese officials, including Prime Minister Takaichi, are expected to speak with Treasury Secretary Bessent next week.
  • Indonesia is setting up a plan to stabilize its bond market.
  • Norges Bank unexpectedly increased its policy rate to 4.25% from 4.00% due to inflation.
  • Riksbank left its policy rate at 1.75% but indicated readiness to act.
  • Today's local elections in the U.K. are expected to be a setback for the Labour government, which has been steadily losing support since taking power in mid-2024.
  • Airbus received an order for 150 aircraft from AirAsia.
  • Japan's April Monetary Base was down 11.3% yr/yr (expected -10.5%; last -11.6%).
  • Australia's March trade deficit reached AUD1.84 bln (expected surplus of AUD4.38 bln; last surplus of AUD5.026 bln) as imports grew 14.1% m/m (last -2.7%) and exports fell 2.7% m/m (last 4.2%).
  • Eurozone's March Retail Sales dipped 0.1% m/m (expected -0.3%: last -0.3%) but were up 1.2% yr/yr (expected 1.0%; last 1.3%). April Construction PMI hit 41.7 (last 44.6).
  • Germany's March Factory Orders rose 5.0% m/m (expected 1.0%; last 1.4%).
  • U.K.'s April Construction PMI hit 39.7 (expected 45.8; last 45.6).
  • France's March trade deficit reached EUR6.9 bln (expected deficit of EUR6.7 bln; last deficit of EUR5.5 bln) and March Current Account deficit reached EUR8.20 bln (last deficit of EUR1.50 bln).
  • Swiss April Unemployment Rate remained at 3.0%, as expected.
• Today's Data:
  • Nonfarm business sector labor productivity increased 0.8% in the first quarter (Briefing.com consensus: 1.8%) following a downwardly revised 1.6% increase (from 1.8%) in the fourth quarter. Unit labor costs rose 2.3% (Briefing.com consensus: 2.7%) on the heels of an upwardly revised 4.6% increase (from 4.4%) in the fourth quarter.
    • The key takeaway from the report is that, while productivity undershot expectations, unit labor costs decelerated in a move that should placate inflation hawks at the Fed. That won't change the prevailing belief that the Fed isn't going to be cutting rates soon, but it will temper some of the budding fears about entertaining the idea of a rate hike.
  • Initial jobless claims for the week ending May 2 increased by 10,000 to 200,000 (Briefing.com consensus: 205,000), while continuing jobless claims for the week ending April 25 decreased by 10,000 to 1.766 million.
    • The key takeaway from the report is its quiet disposition in the sense that it isn't showing wide swings in either initial claims or continuing claims, which suggests some welcome steadiness in the labor market.
  • Construction spending increased 0.6% month-over-month in March (Briefing.com consensus: 0.4%) following a 0.2% decline in February. On a year-over-year basis, construction spending was up 1.6%. The key takeaway from the report is that the strength in March was concentrated in the residential sector and particularly in new single-family construction.
  • Consumer credit increased by $24.9 billion in March (Briefing.com consensus: $12.5 billion), the largest increase in a year, following a downwardly revised $8.9 billion increase (from $9.5 billion) in February.
    • The key takeaway from the report is the recognition that consumer credit saw its largest expansion in a year, driven by both revolving and nonrevolving credit. The former will stir some concerns about consumers perhaps needing to use credit more in the face of higher energy prices to pay for basic needs..
  • Weekly natural gas inventories increased by 63 bcf after increasing by 79 bcf a week ago.
• Commodities:
  • WTI crude: -0.4% to $94.89/bbl
  • Gold: +0.3% to $4708.50/ozt
  • Copper: -0.2% to $6.18/lb
• Currencies:
  • EUR/USD: UNCH at 1.1748
  • GBP/USD: -0.1% to 1.3579
  • USD/CNH: -0.1% to 6.8060
  • USD/JPY: +0.4% to 156.76
• The Day Ahead:
  • 8:30 ET: April Nonfarm Payrolls (Briefing.com consensus 67,000; prior 178,000), Nonfarm Private Payrolls (Briefing.com consensus 60,000; prior 186,000), April Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2)
  • 10:00 ET: March Wholesale Inventories (Briefing.com consensus 1.4%; prior 0.8%) and preliminary May University of Michigan Consumer Sentiment (Briefing.com consensus 50.5; prior 49.8)