Markets Eye 30-Year Treasury Auction

INTEREST RATE MARKET FUTURES

Futures are higher across the curve after PPI and CPI data for May came in slightly softer than expected. Monthly PPI inflation in May rose 0.1%, below expectations of 0.2%. Annualized CPI inflation rose at a rate of 2.4% in May, just below the expected 2.5% and above the previous reading of 2.3%, showing inflation ticked slightly higher.

The readings reinforce the Fed’s wait-and-see approach to monetary policy, with the bank still expected to hold rates steady until its September meeting. Markets are expecting 50 bps of easing this year from the Fed, with the first rate cut coming at the September meeting.

Wednesday’s 10-year treasury note auction was met with strong demand, with foreign demand remaining near the six-auction average, helping to calm some investor fears over demand worries of longer-dated US debt. The 10-year note fetched a yield of 4.421%, about half a bps lower than the expected rate, while the bid-to-cover ratio was 2.52, near recent trends ($2.52 in bids for every $1 of notes sold). Attention now turns to the highly anticipated 30-year bond auction at 12:00 p.m. CT. The 30-year auction will be closely watched for signs that bond investors may be putting their foot down and rejecting countries with huge fiscal deficits and mountains of debt.

This week’s Treasury auctions are drawing heightened attention as key indicators of market sentiment toward US assets. While investor demand has remained solid for short- and medium-term debt, interest in longer-term bonds remains uncertain, although Wednesday’s 10-year auction allayed some fears that investors might be moving away from the market. Bond markets recently have raised alarms about a lack of fiscal discipline worldwide. The added burden of tariffs is also expected to dampen global growth and pressure governments to increase spending. Investors are worried that an increase in bond issuance to finance government debts will outpace demand, hence the scrutiny over recent auctions. Recent trade policies, combined with the fiscal picture of the US debt, have caused worries in bond markets across the globe, causing investors to demand higher yields on bonds.

The 10-year Treasury yield is 4.35%, and the 30-year yield is hovering around 4.85%. The spread between the two- and 10-year yields fell to 46 bps from 47 bps Wednesday.

STOCK INDEX FUTURES

Stock index futures are lower after President Trump announced he would be notifying countries of their unilateral “take it or leave it” tariff rates. However, Trump added he could extend a July 8 deadline for trade talks with other nations before higher US tariffs take effect but did not foresee such a need. Treasury Secretary Scott Bessent also indicated the Trump administration may extend the 90-day pause on reciprocal tariffs for nations demonstrating “good faith” in trade negotiations.

PPI inflation data for May offered some support for the indexes, with inflation coming in lower than expected, adding to bets that the Fed will cut rates in September; rate cuts from the Fed would be supportive of the equity markets. Weekly initial jobless claims came in higher than expected, with 248,000 claims vs. an expected 242,000, matching last week’s figure.

A federal appeals court on Tuesday granted the Trump administration’s request to keep the president’s far-reaching tariffs in effect for now but agreed to fast-track its consideration of the case this summer. The US and Mexico are reportedly negotiating a deal to reduce or eliminate the 50% tariff on steel imports up to a certain volume. A likely outcome of the agreement would include a quota arrangement, under which a specified volume of steel would enter the US either tariff-free or at a reduced rate, and any imports above that level would be subject to the 50% tariff.

On Friday, the University of Michigan will publish its latest consumer sentiment index, offering further insight into public confidence in the economy.

Stock valuations are still relatively high by historical standards; the S&P 500 was trading at 22 times its expected earnings over the next 12 months as of June 6, versus a 10-year average of 18.7 times. The high price-to-earnings ratio is at odds with the current macro environment, which has seen central banks and private companies across the globe cut their growth forecasts due to the still-unfolding consequences of uncertain trade policies

CURRENCY FUTURES

The USD index extends its decline as worries over US tariffs mount after President Trump announced he would notify trading partners soon of unilateral tariffs. A weaker-than-expected PPI inflation reading for May also pressured the greenback. Yesterday’s CPI report was also bearish for the dollar, which saw CPI inflation rise below expectations.

Investors will be watching the 30-year Treasury Bond Auction today for signals on foreign demand. If foreign investors are looking to reduce exposure to dollar-denominated assets, there is a chance they might not reinvest in new bonds. Weak demand at the auctions could put downward pressure on the dollar. However, yesterday’s 10-year note auction was met with healthy demand.

Euro futures are higher as the euro reached its highest level since November 2021. Recent comments from ECB officials have reinforced expectations that the bank may soon pause its easing cycle, opting for a wait-and-see approach to gauge the economic fallout from new US tariffs. In May, Eurozone inflation slowed to 1.9%, while the ECB implemented its eighth consecutive rate cut, lowering the deposit facility rate to 2%. ECB president Christine Lagarde said that the central bank is likely “getting to the end of the monetary-policy cycle.” However, the ECB president also noted that the bank is prepared to lower its key interest rate again if needed. The bank cut its benchmark interest rate by 25 bps to 2.00% last week. Markets are now pricing in only one more rate cut by the end of the year.

British pound futures are higher on dollar weakness. UK GDP figures showed that the economy contracted in April, with a -0.3% growth rate from March, below expectations of -0.1%. Industrial production and manufacturing production sectors also contracted in growth, beyond economists’ expectations. Tariffs’ impact on the economy has slowed production at factories after importers rushed to stock up on goods in March. Prior to the April contraction, Europe’s second-largest economy had enjoyed a brisk start to 2025 as it grew by 0.7% in the first quarter, outpacing the eurozone. Data showed the UK labor market cooled in the three months to April, with the unemployment rate rising and the economy adding fewer jobs than expected. Despite these headwinds, policymakers are unlikely to lower interest rates at the June 19 meeting. Markets are still anticipating a rate cut in August.

Yen futures are higher, gaining support from a weaker dollar and flight to quality longs amid President Trump’s new tariff plans. New data showed a further deterioration in business sentiment during the second quarter, as uncertainty surrounding US trade policy weighed on the country’s export-driven economy, with the BSI Manufacturing Conditions index falling to -4.8 from -2.4.

Australian dollar futures edged higher. Markets are pricing in an 80% chance the Reserve Bank of Australia will cut rates by 25 bps at its July meeting, with another 50 bps of easing for the remainder of the year as well. Consumer sentiment rose for the fourth time this year, with the Westpac-Melbourne Institute Consumer Sentiment Index increasing by 0.5% month-over-month in June, down from a previous 2.2% rise in May. Meanwhile, business confidence improved, with the NAB Business Confidence Index rising to 2 in May from -1 in the previous month—turning positive for the first time since January and reaching its highest level in four months.

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