Weekly house view | Mr. Bond hits back
The week in review
The House of Representatives narrowly passed the “One Big Beautiful Bill” that promises sweeping tax cuts, fuelling markets’ fiscal fears and driving US equities lower, and Treasury yields higher. The Congressional Budget Office (CBO) projects the bill, which now goes to the Republican-controlled Senate, would add USD2.3 tn to deficits over the next decade. That prospect jolted investors, already unnerved by Moody’s stripping the US of its AAA rating the prior week.
The bond market hit back, with a sale of 20-year US government bonds seeing weak demand. After the auction, the 30-year yield hit its highest since 2023. Treasury Secretary Bessent said regulators may ease some US bank capital rules this summer, which could encourage them to boost their Treasury holdings, reducing yields.
On the week, the 10-year Treasury yield rose 7 bps to 4.51%. The S&P5001 fell 2.6% (in USD).
Japanese 30-year bond yields hit record highs on inflation concerns. Gold rose 4.8% amid the bond market turmoil. President Trump announced plans to impose a 50% tariff on imports from the EU next month, but then delayed their imposition until 9 July to allow negotiations.
After speaking to Russian President Putin, Trump said a peace deal could only be negotiated between Russia and Ukraine. Trump later said he was “not happy with what Putin’s doing” after Russia’s largest aerial attack of the three-year war in Ukraine.
Geopolitics
US intelligence suggests Israel is preparing a strike on Iranian nuclear facilities, CNN reported, citing multiple US officials.
Key data
Euro area Flash Composite PMI fell to 49.5 in May, indicating contraction. The fall was driven by weakness in the services sector. Germany’s GDP growth for Q1 was revised upward to 0.4% quarter-on-quarter, from an initial estimate of 0.2%, driven by stronger-than-expected manufacturing output. In China, economic activity was mixed in April. Industrial production exceeded expectations, but retail sales fell short of expectations. In the UK, inflation surged in April to 3.5%. Q1 GDP growth surpassed expectations at +0.7% quarter-on-quarter.