Weak Inflation Data, Successful China Negotiations Highlight Today’s Session

Rates decline on weak CPI. Treasury yields opened the day slightly higher following news from President Trump that a deal with China is imminent. However, yields quickly plummeted from intraday highs after this morning’s CPI data, which was generally lower than expected, making earlier Fed rate cuts more likely. The 2-year yield closed 7 bps lower on the session at 3.95% while the 10-year fell 5 bps to 4.42%. Markets are now looking ahead to tomorrow’s PPI data, where five of six readings are expected to accelerate in May from April.

CPI lands below estimates. May CPI was generally softer than expected, with three of four readings at least 0.1% below median forecasts. On a monthly basis, headline CPI was 0.1% vs. expectations of a 0.2% advance, while core CPI fell to 0.1% vs. expectations of an increase to 0.3%. On a yearly basis, headline CPI was in line with estimates at 2.4% while core CPI was slightly below expectations at 2.8%. The results marked the 4th consecutive month of CPI rising less than forecast, a sign that companies remain hesitant to pass tariff-related costs to consumers and that tariff pauses may have mitigated price pressures. Inventory buildups earlier this year may have contributed as well, according to Fitch Ratings Chief Economist Brian Coulton, though the full impact of tariffs remains to be seen.

President Trump says a deal with China is done. After US Treasury Secretary Bessent and Commerce Secretary Lutnick held discussions with Chinese representatives in London, President Trump posted on social media today that a deal with China is “done,” though it is still subject to final approval by himself and President Xi. Once completed, Beijing will supply rare earths and magnets immediately, while the US will allow Chinese students into its universities. President Trump’s social media post also stated that US tariffs will be 55% while China is “getting 10%.” Commerce Secretary Lutnick later stated that he expects final approvals within a few days, though he does not expect a written version to be released publicly.