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    3:45 pm - Treasuries Sink on Strong Data

    • Government notes and bonds lost significant ground today after better-than-expected ISM and Construction Spending data were released at 10:00 ET. The yield curve steepened slightly, but the 2-year note still lost 4 basis points, extraordinary weakness for that maturity which has so far held up quite well despite the global bond sell-off
    • Yield Check:
      • 2-yr: +4 bps to 0.65%
      • 5-yr: +7 bps to 1.55%
      • 10-yr: +6 bps to 2.18%
      • 30-yr: +6 bps to 2.94%
    • News:
      • Personal income increased 0.4% in April after being unchanged in March. The Briefing.com Consensus expected personal income to increase 0.3%
      • Personal spending was flat in April after increasing an upwardly revised 0.5% (from 0.4%) in March. The consensus expected personal spending to increase 0.2%
      • Fed vice-chairman Fischer spoke today, saying that it might be appropriate for the Fed to use monetary policy to prevent financial instability. There is an ongoing debate about whether or not macroprudential regulation can accomplish this task alone
      • Boston Fed President Rosengren (non-FOMC voter) made dovish remarks, saying that he did not see a snapback in the economic data from the first quarter soft patch and that he did not expect to see timely improvements in the unemployment rate and sufficient progress towards the 2% inflation target to justify rate hikes
      • The ISM Manufacturing Index increased to 52.8 in May from 51.5 in April. The Briefing.com Consensus expected the index to increase to 51.9
        • Despite poor regional manufacturing reports, the national index showed a fairly well rounded acceleration in manufacturing activities
        • New orders growth strengthened as the related index increased to 55.8 in May from 53.5 in April. Order backlogs exited a two-month contraction and increased to 53.5 from 49.5 in April
      • Construction spending increased 2.2% in April after increasing an upwardly revised 0.5% (from -0.6%) in March. The Briefing.com Consensus expected construction spending to increase 0.8%
        • That was the largest monthly increase in construction spending since a similar gain in May 2012
    • Commodities:
      • WTI Crude: -0.07% to $60.26/bbl
      • Gold: unch at $1,189.80/troy oz.
      • Copper: -0.31% to $2.72/lb.
    • Currencies:
      • EUR/USD: -0.51% to $1.0927
      • USD/JPY: +0.54% to 124.81
    • Data out Tuesday:
      • April Factory Orders (10:00 ET)
      • May Auto and Truck Sales (17:00 ET)

    3:12 pm - Dollar Gains on ISM Beat

    • The U.S. Dollar Index rallied 0.51% to 97.40 on the back of a better-than-expected report from the Institute of Supply Management. The Index increased to 52.8 in May from 51.5 in April
    • EUR/USD fell 0.47% after the ISM release, despite Manufacturing PMI's in Europe that generally beat expectations. Italy and Spain were particularly strong
      • According to Bloomberg, top level talks between the IMF, the ECB, the French and German leaders, and European Commission President Jean-Claude Juncker are set to take place tonight
    • GBP/USD: -0.61% to $1.5201
    • USD/JPY: +0.57% to 124.84
    • USD/CAD: +0.57% to 1.2526
    • AUD/USD: -0.48% to 0.7607
      • The Reserve Bank of Australia meets on June 2

    2:04 pm - Market Follows Through on Friday's Reversal

    • Treasuries are maintaining their negative posture from Friday today and this will embolden bears who sold on some significant technical levels last week. The 30-year yield found support at its 200-day moving average and tested its low from May 8th. The 10-year yield also touched its low from May 8th and held that level. The TLH moved up to its old channel that guided it higher in 2014, and sold off sharply (See chart below)
    • Yield Check:
      • 2-yr: +4 bps to 0.64%
      • 5-yr: +7 bps to 1.56%
      • 10-yr: +7 bps to 2.19%
      • 30-yr: +7 bps to 2.95%
    • The better-than-expected economic data are driving the selling
    • Italian and Spanish 10-year yields are closing in on 2.00%
    • The Portuguese 10-year yield touched its highest level since January, up 16 basis points to 2.72%
    • 10-Year Yield (Daily)


    • 30-Year Yield (Daily)


    • TLH (Daily)

    12:56 pm - European Yields Rise Too

    • Government bonds on both sides of the Atlantic are taking losses after a positive surprise from the May ISM report
    • Yield Check:
      • 2-yr: +2 bps to 0.63%
      • 5-yr: +5 bps to 1.54%
      • 10-yr: +5 bps to 2.17%
      • 30-yr: +5 bps to 2.94%
    • WTI Crude is trading down 1.21% to $59.57/bbl
    • The U.S. equity market has turned around its losses and the S&P 500 now up 0.31% to 2,114

    11:37 am - Market Digests May ISM Beat

    • After trading for weeks on a steady stream of negative U.S. economic data (excepting employment numbers) and Greek headlines, the Treasury complex is now contemplating the meaning of the better-than-expected May ISM Index reading. The new orders index rose to 55.8 from 53.5 and the orders backlog was at 53.5 versus 49.5 in April
    • Yield Check:
      • 2-yr: +1 bp to 0.62%
      • 5-yr: +3 bps to 1.51%
      • 10-yr: +3 bps to 2.16%
      • 30-yr: +4 bps to 2.93%
    • According to Capital Economics, the ECB's current QE program and the Outright Monetary Transaction program (which requires the target country's government to sign a Memorandum of Understanding before being activated) are not sufficient to prevent contagion if Grexit were eventually to lead to an improving economic picture for Greece (and thereby entice Spain and Portugal to feel more confident in driving a hard line with the ECB). The ECB's current asset purchase program only buys sovereign bonds on the basis of the ECB's capital key, which wouldn't allow it to be used as a bazooka targeted at a single country's debt market
      • Portugal's 10-year note yield rose 18 basis points today to 2.73%, a 170 basis point-premium to German Bunds. We have been saying for some time that the risks of contagion from Grexit have probably been ring-fenced by the ECB. The Portuguese sovereign debt market is disagreeing today

    11:37 am - Economic Data Helps Drive Early Dollar Move: The Dollar Index is seeing a rally to kick off the week. The DXY was testing 97 for supporting early trade. But it has been able to lift off that area following a solid round of economic data to start off a busy week. Personal Income, ISM Index, a Markit PMI revision and construction spend all outpaced expectations. PCE Prices and Spending fell short of expectations but the strong ISM and Construction are overshadowing that news. The 97.75 highs from next week will set up as a key level in early trade. The key item of the week will be the jobs report on Friday.

    • The euro has run into some resistance at it s 50 sma (1.0960) as the region kicks off a crucial week for the Greek debt issue. The region saw a steady round of Manufacturing PMI data for starters, but the key remains the Greek issue as a Friday IMF payment looms. Early on, market participants were pointing to comments from Greece's Interior Minister which suggested some parts of the program could be delayed. This would suggest the potential for some compromise. But we have yet to hear any confirmation from this from the EU side. We have heard chatter of deals before, yet are still awaiting some sort of bargain. And over the weekend, Greece's PM Tspiras provided comments that suggested the two sides remains far apart. So this will remain a crucial issue over the course of the week. Also of interest will be the ECB meeting on Wednesday. Certainly the central bank will attempt to settle any nerves on potential liquidity issues in the region if Greece was in fact to default.
    • The pound is testing its 50- and 100-sma as it slides to below 1.52 for the first time in three weeks. Cable has now given up over half of its recent rally, The country saw its May Manufacturing PMI survey miss expectations which is helping the slide. The Bank of England is set to meet on Thursday but is not expected to make any changes to its current plan. 
    • The yen continued its decline as it hit a fresh multi-year low (124.68) this morning. The Manufacturing PMI number came in line with expectations and was flat from the prior month. This suggests the country continues to see growth albeit at a very modest pace.

    10:52 am - Better Data Increases Likelihood of September Hike

    • Stocks and fixed income are on their back feet this morning after better-than-expected Construction Spending and ISM data have moved market expectations for Fed policy normalization sooner and steeper
    • Yield Check:
      • 2-yr: +1 bp to 0.62%
      • 5-yr: ++2 bps to 1.50%
      • 10-yr: +2 bps to 2.15%
      • 30-yr: +3 bps to 2.91%
    • The Fed funds market is now forecasting a probability of 58% that there will be a rate hike at or before the December FOMC meeting
    • The S&P 500 is down 0.10% to 2,105.20. While the net decline is limited, the market saw strong pre-open gains on a baseless rumor of a Greek accord, with the implied price of the index rising as high as 2,117.90

    10:16 am - Treasuries Sell off on Better Data

    • In a rare 2-for-2 upside surprise of economic data, both the May ISM Index and April Construction Spending beat expectations, putting some weakness into the Treasury complex
      • The ISM Manufacturing Index increased to 52.8 in May from 51.5 in April. The Briefing.com Consensus expected the index to increase to 51.9
      • Despite poor regional manufacturing reports, the national index showed a fairly well rounded acceleration in manufacturing activities
      • Production growth slowed, but remained at a still healthy 54.5 in May. That was down from 56.0 in April. New orders growth strengthened as the related index increased to 55.8 in May from 53.5 in April. Order backlogs exited a two-month contraction and increased to 53.5 from 49.5 in April
      • Employment also exited a contraction. The related index increased to 51.7 in May from 48.3 in April
    • Yield Check:
      • 2-yr: +2 bps to 0.63%
      • 5-yr: +1 bp to 1.50%
      • 10-yr: unch at 2.12%
      • 30-yr: +1 bp to 2.89%

    09:46 am - Fischer Says Monetary Policy Can Fight Bubbles

    • More specifically, he said that the Fed should not rule out using interest rates to fight financial instability as it isn't clear if macroprudential regulation alone can do the job
    • As Vice-Chair of the Fed, Fischer is said to have the ear of Janet Yellen, and the idea of whether or not the Fed can fight bubbles with monetary policy has been an ongoing debate
    • While Yellen has said in the past that equity valuations are stretched, it has not been (and remains) unclear if that will prompt any action from the Fed. The new dynamic might be called the Fischer call instead of the Greenspan put
    • While stocks are falling after the open, and potentially on Fischer's remarks, the short end of the yield curve is not rallying, and one would expect to see that if the market saw a higher probability of imminent rate hikes
    • Yield Check:
      • 2-yr: -1 bp to 0.60%
      • 5-yr: -1 bp to 1.48%
      • 10-yr: -1 bp to 2.12%
      • 30-yr: unch at 2.88%

    09:32 am - 10's and 30's Weaken on Dovish Comments

    • Eric Rosengren, President of the Boston Fed and non-FOMC voter, spoke in Hartford, CT at 09:05 ET
      • He said that the first-quarter economic slowdown was not all weather-related as some forecasters had predicted
      • Rosengren noted that the data "were also weak before the storms and have been weaker than expected ever since"
      • He went on to say that the data has not rebounded since the bad weather and also do not show the wide variations by region that one would expect to see if the weakness was due to weather
      • He said that during previous cycles, real GDP growth was 3% in the 2 years prior to monetary tightening, whereas growth has only been 2.3% over the past 2. He also said there is a strong possibility that growth in the first half of the year will average much less than 2%
    • Yield Check:
      • 2-yr: -1 bp to 0.60%
      • 5-yr: -1 bp to 1.48%
      • 10-yr:  unch at 2.12%
      • 30-yr: +1 bp to 2.90%
    • The long end of the yield curve did not take Rosengren's remarks well

    08:51 am - Treasury Complex Trades to Highs

    • Government debt rallied after the 08:30 ET release of data showing that consumers in the United States were loathe to open their wallets in April. Personal spending was flat in after increasing an upwardly revised 0.5% (from 0.4%) in March. The consensus expected personal spending to increase 0.2%
    • Personal income, however, did increase a higher-than-expected 0.4%, after being unchanged in March
    • A weak retail sales report (headline 0.0% and core 0.1%) resulted in a big decline in total goods spending. Spending on goods declined 0.5% after increasing 1.2% in March. Demand declined for both durable (-0.7%) and nondurable (-0.5%) goods
      • Services spending increased 0.2% for a second consecutive month.
    • After a one-month respite, the personal savings rate again turned upward in April. Personal savings increased to 5.6% from 5.2% in March
    • Yield Check:
      • 2-yr: -1 bp to 0.61%
      • 5-yr: -1 bp to 1.48%
      • 10-yr: unch at 2.13%
      • 30-yr: -1 bp to 2.87%
    • See Bloomberg's article here about high earners dragging on consumer demand
      • 'The caution of high-income consumers is key to the lackluster retailing environment' because the top 20 percent of households make up more than half of total spending, said Mark Zandi, chief economist of Moody's Analytics Inc. in New York
      • With consumer spending making up about 70% of consumer spending, that means that 35% of GDP is facing serious headwinds to growth

    08:24 am - Core Unchanged, Periphery Declines

    • The sovereign debt of Germany and France found better buying interest today with the Manufacturing PMI's of those nations continuing to show weakness. Meanwhile, the Italian and Spanish manufacturing sectors are showing substantial strength. Greece tensions have not eased over the weekend, although a rumor about a deal this morning has erased German Bund gains despite the rumor being denied by officials
    • Yield Check:
      • France, 10-yr OAT:unch at 0.80%
      • Germany, 10-yr Bund: unch at 0.48%
      • Greece, 10-yr note: +15 bps to 11.22%
      • Italy, 10-yr BTP: +4 bps to 1.90%
      • Portugal, 10-yr note: +12 bps to 2.67%
      • Spain, 10-yr Bono: +4 bps to 1.88%
      • U.K., 10-yr Gilt: +1 bp to 1.84%

    07:30 am - Treasuries Slip Slightly

    • The U.S. Treasury complex pulled back this morning as global equities edged up and Chinese stocks recovered much of last Thursday's losses
    • Yield Check:
      • 2-yr: +1 bp to 0.62%
      • 5-yr: +1 bp to 1.49%
      • 10-yr: unch at 2.13%
      • 30-yr: unch at 2.89%
    • International News:
      • China's HSBC Manufacturing PMI for May met expectations at 49.2, up from 49.1 in April
        • The mediocre data and resulting rumors of further stimulus from the Chinese government sent the Shanghai Composite up 4.71% to 4,828.74
          • There was talk of a doubling in the size of the government's bond swap program, whereby local-government loans are swapped into municipal bonds
      • The Markit Puchasing Managers Index for the eurozone increased to 52.2 in May from 52 in April. The preliminary reading was 52.3
        • The Spanish manufacturing PMI leapt to 55.8 in May from 54.2 in April. The reading reflects the fastest rate of expansion since 2007
        • The Italian manufacturing PMI hit a 4-year high in May at 54.8, up from 53.8 in April
        • Performances in the European core were not as strong, with France's factory sector still contracting and Germany's growth slowing more than expected.
      • Deposits in Greek banks touched an 11-year low in April, increasing the fragility of the banking system
        • German Chancellor Angela Merkel, French President Francois Hollande, and European Commission Presdient Jean-Claude Juncker are in Berlin today to discuss Greece and British membership in the eurozone
        • Greece's IMF representative  candidate is withdrawing amidst criticism from members of Syriza that she supported the previous bailout program
    • Data out Today:
      • April Personal Income and Personal Spending (08:30 ET)
      • April PCE Prices - Core (08:30 ET)
      • May ISM Index (10:00 ET)
      • April Construction Spending (10:00 ET)
    • Fed Speaker:
      • Boston Fed President Rosengren speaks before the 2015 Workforce Stars Breakfast (09:05 ET)

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