Yields fall with US-Iran deal in final stages. Treasury yields plunged today as President Trump posted on social media that the US and Iran were nearing a peace deal, with the signing date to be announced shortly. Trump also called off strikes on Iran that had been planned for tonight. Yields closed 7-10 bps lower across the curve, with the 2-year yield at 4.06% and the 10-year yield at 4.46%. Oil slid on the peace deal news, with WTI crude futures closing at ~$88 per barrel. Meanwhile equities rallied, with the S&P 500 and NASDAQ closing 1.75% and 2.54% higher, respectively.
Headline PPI hits three-year high. Headline PPI rose 6.5% YoY and 1.1% MoM in May as energy prices surged 10.7% last month. This marked the highest PPI reading since November 2022, as energy price shocks related to the Strait of Hormuz closure continue to amplify inflationary concerns. Core PPI, which excludes food and energy, rose 4.9% YoY and 0.4% MoM, below estimates of 5.4% and 0.5%, respectively. Following this week’s hot CPI print, today’s data could bolster the argument for a Fed rate hike this year, though progress on the Iran conflict could temper hawkish sentiment.
ECB hikes rates for the first time since 2023. The European Central Bank voted unanimously to hike rates today to counter energy-driven inflation from the Iran war. ECB President Christine Lagarde warned that the price shock is beginning to broaden “throughout the economy, with direct costs being obvious, with indirect costs also showing up.” The post-meeting statement highlighted a meeting-by-meeting approach, though futures markets are pricing in nearly two additional hikes by year-end. The ECB is the first major central bank to hike rates in response to the inflationary pressures from the Iran war, as the Bank of Canada held policy rates steady earlier this week, and the Fed and Bank of England are expected to do the same next week.