Yields Decline as Manufacturing Sector Slows in May

Rates decline again after weak economic data. Swap rates are ~20bps lower over the past three sessions after today’s weak manufacturing data spurred a significant bond rally. The swap curve bull flattened, with the short end falling 4-6bps and the long end dropping over 10bps. The 2s10s inversion is now ~42bps, just ~6bps off its widest since late 2023. Meanwhile, major equity indices were relatively flat in a session highlighted by another meme-stock surge; GameStop reached a peak of ~$39.50 before closing at $28, a 21% rally.

Manufacturing activity falls in May. ISM data released today showed US factory activity contracted at a faster pace than expected (48.7 vs. 49.6 est). The results were the weakest in three months, with production nearly stagnant in May and new orders falling by the most in nearly two years. ISM Survey Committee chair Timothy Fiore commented on the data, “Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions…”

Israel says there will be no cease-fire unless Hamas is destroyed. Following President Biden’s publicly released proposal for a permanent cease-fire on Friday, Israel Prime Minister Netanyahu reiterated that a deal will not be agreed upon until Hamas is destroyed. He added that Israel is amenable to temporary pauses for returning(s) of hostages, and he is confident that safe passage can be ensured while simultaneously eliminating Hamas. Despite the geopolitical tensions, both WTI and brent crude oil prices (per barrel) dropped over 3.5%, largely driven by Sunday’s acknowledgement from OPEC+ that voluntary production cuts may cease come Q3 2024.