Treasury Issuance Continues to Sway Rates

Rates rise after another Treasury auction. Soft demand at today’s $44B auction of 7y notes headlined rates markets, a continuation of yesterday, which totaled $139B of auctions. Long term rates rose ~8bps throughout the morning and closed 6-7bps higher while the short end of the curve was little changed. The 2y yield remains just under 5% at 4.97%. Elsewhere, the S&P500, NASDAQ, and DJIA sold-off 0.58%-1.06% while the VIX “fear gauge” jumped 10% to over 14.

Fed’s May Beige Book shows modest economic growth and consumer resistance to higher prices. From early to mid-May, the economy grew at a “slight or modest” pace, but conditions “varied” across regions and industries. Retail spending was nearly flat due to lower discretionary spending and higher consumer price sensitivity. The report noted that while prices increased at “a modest pace”, business contacts said consumers are pushing back leading to business margin compression. The report also mentioned that “tight credit standards and high interest rates continue to constrain lending growth.”

China growth forecast lifted to 5%. The International Monetary Fund (IMF) updated its China growth projection to 5% this year, up from 4.6% previously. The increase matches China’s 5% goal, which was described as a “positive target that can be attained through vigorous effort” by Zheng Shanjie, chairman of the National Development and Reform Commission. The IMF cited additional support from the government as a catalyst for the revision, and they expect the momentum to continue in 2025; the GDP forecast for 2025 was revised upward to 4.5%.