Bond Market Update

Waiting Patiently

• U.S. Treasuries traded with a positive bias in the overnight session before losing some strength in the cash session. Yields, however, were still lower across the board, with the front end to the intermediate end of the curve exhibiting relative strength in a bull-steepener trade. Treasuries held their ground as oil prices slipped and as stocks managed to regain their footing from some tech-induced weakness to start the session. That weakness was short-lived, however, as the Dow Jones Industrial Average managed a new record high on a rotation into blue-chip stocks. The Treasury market was also waiting patiently for the release of the May Employment Situation Report before Friday's open.
• Yield Check:
  • 2-yr: -4 bps to 4.05%
  • 3-yr: -4 bps to 4.10%
  • 5-yr: -3 bps to 4.19%
  • 10-yr: -1 bp to 4.48%
  • 30-yr: -1 bp to 4.98%

• News:
  • President Trump told advisors he will not resume all-out war with Iran unless additional U.S. troops are killed. WSJ
  • The House passes a resolution to end hostilities in Iran, but the vote is largely symbolic because there is not enough support to override a presidential veto. NBC News
  • President Trump says the Iran deal could happen this weekend. USA Today
  • State Department says Israel and Lebanon agreed to the implementation of a ceasefire; the ceasefire is contingent on a complete cessation of Hezbollah fire and the evacuation of all Hezbollah operatives from the South Litani Sector
  • Senate advances $70 bln funding bill for immigration enforcement agencies through 2029. Final passage expected later this week. The Hill
  • BOJ Governor Ueda, in a speech, spoke of inflation risks, which in turn increased speculation that the central bank will increase its policy rate this month
  • Japan and South Korea digested chatter about potential intervention to support weakening currencies
  • Construction PMI readings for May for major European countries were improved from last month but still below 50.0, which is the demarcation line between expansion and contraction.
• Today's Data:
  • First quarter productivity was revised down to 0.3% (Briefing.com consensus: 0.8%) from the preliminary estimate of 0.8%. Unit labor costs were revised down to 1.8% (Briefing.com consensus: 2.3%) from the preliminary estimate of 2.3%.
    • The key takeaway from the report is the understanding that productivity has picked up nicely from a year ago (+2.8%), while unit labor costs (+0.5%) have come down, tempering concerns about labor-based inflation pressures.
  • Initial jobless claims for the week ending May 30 increased by 13,000 to 225,000 (Briefing.com consensus: 216,000). Continuing jobless claims for the week ending May 23 decreased by 8,000 to 1.777 million.
    • The key takeaway from the report is that there isn't any concerning key takeaway. Granted, initial jobless claims—a leading indicator—were up from the prior week, but they remain at levels that are consistent with an otherwise solid labor market.
• Commodities: 
  • WTI crude: -3.1% to $93.12/bbl
  • Gold: +1.0% to $4505.90/ozt
  • Copper: +0.6% to $6.54/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1611
  • GBP/USD: flat at 1.3423
  • USD/CNH: flat at 6.775
  • USD/JPY: flat at 160.01
• The Day Ahead:
  • 08:30 ET: May Nonfarm Payrolls (Briefing.com consensus: 96K; prior 115K)
  • 08:30 ET: May Nonfarm Private Payrolls (Briefing.com consensus: 89K; prior 123K
  • 08:30 ET: May Unemployment rate (Briefing.com consensus: 4.3%; prior 4.3%)
  • 08:30 ET: May Average Hourly Earnings (Briefing.com consensus: 0.3%; prior 0.2%)
  • 08:30 ET: May Average Workweek (Briefing.com consensus: 34.3; prior 34.3)
  • 15:00 ET: April Consumer Credit (Briefing.com consensus: $17.5B; prior $24.9B)