Updated: 05-22-2020

The Market at 03:21PM ET
10-Year: +5/32…0.657…
EUR/USD: 1.0903…
USD/JPY: 107.56…

Moving the Market

-- Longer tenors build on recent strength

-- China will scrap its GDP growth target for 2020, in line with recent speculation

-- U.S. Dollar Index rises toward 50-day moving average (99.95) again

03:21PM ET

Mixed Finish Ahead of Long Weekend

  • U.S. Treasuries ended the week on a mostly higher note, pressuring the 30-yr yield back toward its 50-day moving average (1.349%) after it jumped above that level during Monday's slide. Treasuries started the day on a higher note after China's Communist Party officially scrapped its GDP growth target for 2020, in-line with speculation from recent weeks. In addition, it was reported that the National People's Congress will vote on the Hong Kong National Security Law on Thursday, confirming fears about China's intent to strengthen its grip over the city. The market did not receive any U.S. data, so the early tone was maintained throughout the day, making for a quiet session. The 10-yr note marked a session high and low during the first hour of action, remaining near the middle of that range into the close. Participation was undoubtedly impacted by the upcoming Memorial Day holiday. The 2s10s spread ended the week unchanged at 49 bps while the 2s30s spread expanded by three basis points to 120 bps. The U.S. Dollar Index rose 0.4% to 99.76, narrowing this week's loss to 0.6%.
  • Yield Check:
    • 2-yr: +2 bps to 0.17% (+2 bps for the week)
    • 3-yr: UNCH at 0.20% (+1 bp for the week)
    • 5-yr: -1 bp to 0.33% (+2 bps for the week)
    • 10-yr: -2 bps to 0.66% (+2 bps for the week)
    • 30-yr: -3 bps to 1.37% (+5 bps for the week)
  • News:
    • The New York Fed will reduce its daily purchases of Treasuries to $5 bln from $6 bln next week.
    • The Bank of Japan made no headline changes to its policy stance at today's emergency meeting but announced a JPY30 trln fund to support the banking sector.
    • The Reserve Bank of India unexpectedly lowered its repurchase rate by 40 bps to 4.00%. The reverse repurchase rate was lowered to 3.35% from 4.00%.
    • Fitch affirmed Australia's AAA rating but lowered the outlook to Negative from Stable.
    • Italy's Prime Minister, Giuseppe Conte, said that the planned EU recovery fund would not require Italy to borrow through the European Stability Mechanism.
    • Germany's Bundestag will debate the court ruling that called the legality of the ECB's quantitative easing program into question. The ECB is a supranational organization so it can't be punished
    • French Finance Minister, Bruno Le Maire, said that he will seek a suspension of the EU stability pact for next year.
    • The U.K.'s Financial Conduct Authority will extend the mortgage payment holiday through October.
    • Japan's April National CPI decreased 0.2% m/m (last 0.0%), ticking up 0.1% yr/yr (last 0.4%). April National Core CPI fell 0.2% yr/yr (expected -0.1%; last 0.4%).
    • New Zealand's Q1 Retail Sales fell 0.7% qtr/qtr (last 0.7%) while Core Retail Sales rose 0.6% qtr/qtr (last 0.5%).
    • U.K.'s April Retail Sales fell 18.1% m/m (expected -16.0%; last -5.2%), contracting 22.6% yr/yr (expected -22.2%; last -5.8%). Core Retail Sales fell 15.2% m/m (expected -15.0%; last -3.8%), decreasing 18.4% yr/yr (expected -18.2%; last -4.2%). April Public Sector Net Borrowing totaled GBP61.40 bln (expected GBP35.00 bln; last GBP14.01 bln).
  • Commodities:
    • WTI crude: -2.1% to $33.25/bbl
    • Gold: +0.9% to $1735.70/ozt
    • Copper: -1.9% to $2.386/lb
  • Currencies:
    • EUR/USD: -0.4% to 1.0903
    • GBP/USD: -0.4% to 1.2175
    • USD/CNH: +0.2% to 7.1438
    • USD/JPY: -0.1% to 107.56
  • The Week Ahead:
    • Monday: Bond and equity markets closed for Memorial Day
    • Tuesday: March S&P Case-Shiller Home Price Index (prior 0.7%) and May FHFA Housing Price Index (prior 0.7%) at 9:00 ET; April New Home Sales (prior 627,000) and May Consumer Confidence (prior 86.9) at 10:00 ET; and $44 bln 2-yr Treasury note auction results at 13:00 ET
    • Wednesday: Weekly MBA Mortgage Index (prior -2.6%) at 7:00 ET; weekly crude oil inventories (prior -4.98 mln) at 10:30 ET; and $45 bln 5-yr Treasury note auction results at 13:00 ET
    • Thursday: Weekly Initial Claims (prior 2.438 mln), Continuing Claims (prior 25.073 mln), April Durable Orders (prior -14.4%), Durable Orders ex-transportation (prior -0.2%), Q1 GDP -- Second Estimate (prior -4.8%), and Q1 GDP Deflator -- Second Estimate (prior 1.3%) at 8:30 ET; April Pending Home Sales (prior -20.8%) at 10:00 ET; weekly natural gas inventories (prior +81 bcf) at 10:30 ET; and $38 bln 7-yr Treasury note auction results at 13:00 ET
    • Friday: April Personal Income (prior -2.0%), Personal Spending (prior -7.5%), PCE Prices (prior -0.3%), Core PCE Prices (prior -0.1%), April Advance Goods Trade Balance (prior -$64.38 bln), April Advance Retail Inventories (prior -1.0%), and April Advance Wholesale Inventories (prior -0.8%) at 8:30 ET; May Chicago PMI (prior 35.4) at 9:45 ET; and Final May Michigan Consumer Sentiment (prior 71.8) at 10:00 ET

10-Yr: +5/32… EUR/USD: 1.0903… USD/JPY: 107.56…

12:57PM ET

Holding Ground

  • U.S. Treasuries have continued drifting inside trading ranges that were established in early action. This leaves the 10-yr note right on its starting level while the long bond remains a touch ahead. The Federal Reserve Bank of New York will reduce its daily purchases of Treasuries from $6 bln to $5 bln next week. The U.S. Dollar Index has climbed back toward its morning high, trading up 0.5% at 99.85, while the S&P 500 (-0.1%) continues showing a modest loss.
  • Yield Check:
    • 2-yr: +1 bp to 0.16%
    • 3-yr: UNCH at 0.20%
    • 5-yr: -1 bp to 0.33%
    • 10-yr: -2 bps to 0.66%
    • 30-yr: -3 bps to 1.37%

10-Yr: +4/32… EUR/USD: 1.0891… USD/JPY: 107.56…

10:24AM ET

Drifting Along

  • U.S. Treasuries trade a bit below their opening highs after spending early trade in a narrow range. Treasuries set session highs shortly after the cash start, followed by a shallow pullback. The pullback returned the 10-yr note toward yesterday's closing level, but the past hour has seen a renewed push toward the day's high. The long bond remains slightly ahead while the U.S. Dollar Index has extended its gain to 0.5% at 99.82. This puts the index just below its 50-day moving average (99.95).
  • Yield Check:
    • 2-yr: -1 bp to 0.14%
    • 3-yr: -1 bp to 0.19%
    • 5-yr: -1 bp to 0.33%
    • 10-yr: -2 bps to 0.66%
    • 30-yr: -3 bps to 1.37%

10-Yr: +6/32… EUR/USD: 1.0899… USD/JPY: 107.53…

07:57AM ET

Longer Tenors Remain Ahead

  • Longer-dated U.S. Treasuries are on track for another higher start while shorter tenors are set to begin closer to their flat lines. Treasury futures rallied to highs during the Asian session, which featured some news from the start of China's National People's Congress. China's GDP growth target for 2020 was scrapped, in-line with speculation from recent weeks. The National People's Congress will reportedly vote on the Hong Kong National Security Law on Thursday. Treasury futures backed off their highs at the start of the European session, but longer tenors continue holding roughly half of their overnight gains. The U.S. Dollar Index is higher by 0.4% at 99.74, approaching its 50-day moving average (99.95).
  • Yield Check:
    • 2-yr: +2 bps to 0.17%
    • 3-yr: UNCH at 0.20%
    • 5-yr: -1 bp to 0.33%
    • 10-yr: -3 bps to 0.65%
    • 30-yr: -4 bps to 1.36%
  • News:
    • The Bank of Japan made no headline changes to its policy stance but announced a JPY30 trln fund to support the banking sector.
    • The Reserve Bank of India unexpectedly lowered its repurchase rate by 40 bps to 4.00%. The reverse repurchase rate was lowered to 3.35% from 4.00%.
    • Fitch affirmed Australia's AAA rating but lowered the outlook to Negative from Stable.
    • Italy's Prime Minister, Giuseppe Conte, said that the planned EU recovery fund would not require Italy to borrow through the European Stability Mechanism.
    • Germany's Bundestag will debate the court ruling that called the legality of the ECB's quantitative easing program into question.
    • French Finance Minister, Bruno Le Maire, said that he will seek a suspension of the EU stability pact for next year.
    • The U.K.'s Financial Conduct Authority will extend the mortgage payment holiday through October.
    • Japan's April National CPI decreased 0.2% m/m (last 0.0%), ticking up 0.1% yr/yr (last 0.4%). April National Core CPI fell 0.2% yr/yr (expected -0.1%; last 0.4%). New Zealand's Q1 Retail Sales fell 0.7% qtr/qtr (last 0.7%) while Core Retail Sales rose 0.6% qtr/qtr (last 0.5%).
    • U.K.'s April Retail Sales fell 18.1% m/m (expected -16.0%; last -5.2%), contracting 22.6% yr/yr (expected -22.2%; last -5.8%). Core Retail Sales fell 15.2% m/m (expected -15.0%; last -3.8%), decreasing 18.4% yr/yr (expected -18.2%; last -4.2%). April Public Sector Net Borrowing totaled GBP61.40 bln (expected GBP35.00 bln; last GBP14.01 bln).
  • Commodities:
    • WTI Crude: -5.6% to $32.02/bbl
    • Gold: +0.8% to $1736.10/ozt
    • Copper: -2.2% to $2.38/lb
  • Currencies:
    • EUR/USD: -0.4% to 1.0900
    • GBP/USD: -0.4% to 1.2177
    • USD/CNH: +0.3% to 7.1524
    • USD/JPY: -0.1% to 107.49
  • No Data Scheduled for Today

10-Yr: +5/32… EUR/USD: 1.0900… USD/JPY: 107.49…

03:11PM ET

Quiet Session Ends on Flat Note

  • U.S. Treasuries ended Thursday on a mostly flat note after spending the day in a narrow range. Treasuries of longer tenors continued yesterday's show of relative strength in early trade, but the overall movement was limited. Treasuries padded their opening gains after the release of the latest Initial Claims report, which showed that job losses accumulated over the past nine weeks are nearing 40 million. Treasuries backtracked from their opening highs over the next hour but made another upward push as equities got off to a shaky start. Mid-morning saw another thrust higher, but Treasuries returned toward their starting levels as the afternoon went on. The U.S. Senate will reportedly introduce a bill calling for sanctions on Chinese officials over China's plan to impose a new national security law on Hong Kong. The national security law, which will tighten the Party's grip over the city, is expected to be imposed at this weekend's National People's Congress. The U.S. Dollar Index climbed 0.3% to 99.41, recording its first gain of the week.
  • Yield Check:
    • 2-yr: -1 bp to 0.15%
    • 3-yr: UNCH at 0.20%
    • 5-yr: +1 bp to 0.34%
    • 10-yr: UNCH at 0.68%
    • 30-yr: UNCH at 1.40%
  • News:
    • China's government may reportedly announce policies to support the property sector and a plan to invest CNY10 trln in key technologies over six years at this weekend's National People's Congress.
    • European Central Bank policymaker Fabio Panetta said that while the proposal for a recovery fund is a major step in the right direction, it should not come with strict rules.
    • Spain will reportedly extend its lockdown measures until June 6.
    • Japan's April trade deficit totaled JPY930.40 bln (expected deficit of JPY560.00 bln; last surplus of JPY5.40 bln). May flash Manufacturing PMI fell to 38.4 from 41.9 while flash Services PMI rose to 25.3 from 21.5.
    • Australia's May flash Manufacturing PMI fell to 42.8 from 44.1 while flash Services PMI rose to 25.5 from 19.5.
    • Eurozone's May flash Manufacturing PMI rose to 39.5 from 33.4 (expected 38.0; last 33.4) while flash Services PMI improved to 28.7 from 12.0 (expected 25.0).
    • Germany's May flash Manufacturing PMI rose to 36.8 from 34.5 (expected 39.2) while flash Services PMI rose to 31.4 from 16.2 (expected 26.6).
    • U.K.'s May flash Manufacturing PMI rose to 40.6 from 32.6 (expected 36.0) while flash Services PMI rose to 27.8 from 13.4 (expected 25.0). May CBI Industrial Trends Orders fell to -62 from -56 (expected -59).
    • France's May flash Manufacturing PMI rose to 40.3 from 31.5 (expected 36.1) while flash Services PMI rose to 29.4 from 10.2 (expected 27.8).
  • Today's Data:
    • Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million (Briefing.com consensus 2.400 million), bringing the 9-week total to 38.636 million. Continuing claims for the week ending May 9 surged by 2,525,000 to 25.073 million, which is an all-time high.
      • The key takeaway from the report in the market's mind is that the pace of initial claims is decelerating; however, the real-world takeaway is that the economic damage runs deep as initial claims and continuing claims keep piling up.
    • Existing home sales plummeted 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million (Briefing.com consensus 4.32 million). That is the lowest level of home sales since July 2010. Total sales were down 17.2% year-over-year.
      • The key takeaway from the report is that sellers pulled listings amid the COVID-related downturn in demand, yet the inventory constraint translated into higher prices for buyers remaining in the market.
    • The Conference Board's Leading Economic Index decreased 4.4% m/m in April (Briefing.com consensus -5.3%) following a downwardly revised (and record) 7.4% decline (from -6.7%) in March.
      • The key takeaway from the report is the Conference Board's conclusion that the breadth and depth of the decline in the index does not imply a fast rebound for the economy at large, even with the imminent reopening of some sectors.
    • The Philadelphia Fed Survey improved to -43.1 in May (Briefing.com consensus -43.0) from -56.6 in April.
    • Weekly natural gas inventories increased by 81 bcf after increasing by 103 bcf during the previous week.
  • Commodities:
    • WTI crude: +1.3% to $33.96/bbl
    • Gold: -1.7% to $1721.10/ozt
    • Copper: -1.1% to $2.433/lb
  • Currencies:
    • EUR/USD: -0.2% to 1.0956
    • GBP/USD: UNCH at 1.2235
    • USD/CNH: +0.4% to 7.1292
    • USD/JPY: UNCH at 107.58
  • The Day Ahead:
    • No notable data on the schedule

10-Yr: -2/32… EUR/USD: 1.0956… USD/JPY: 107.58…

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