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Dour UofM Sentiment Tempers Post-Claims Rally, Rate Cut Pricing Cools

US TSYS
  • Treasuries have traded sideways - near lows since midday by the bell, completely reversing Thursday's post-claims rally following this morning's after higher than expected UofM inflation exp.
  • UofM consumer sentiment was much weaker than expected in the preliminary May report at 67.4 (cons 76.2) after an unrevised 77.2. The press release notes the 10pt decline is “statistically significant” and leaves sentiment at the lowest in about six months.
  • Additionally, 1Y inflation expectations increased to 3.5% (cons 3.2) after 3.2%, its highest since November, while 5-10Y expectations increased a tenth to 3.1% (cons 3.0) after 3.0%, also its highest since November but still within the 2.9-3.1% typically seen since Aug 21.
  • The projected rate cut pricing cooled vs. late Thursday: June 2024 at -5% w/ cumulative rate cut -1.2bp (-2.5bp late Thu) at 5.307%, July'24 at -22% w/ cumulative at -6.7bp (-9bp late Thu) at 5.253%, Sep'24 cumulative -19.2bp vs. -22.4bp, Nov'24 cumulative -27.7bp -31.1bp, Dec'24 -40.9bp vs. -45bp.
  • After a slow start to next week, focus is on PPI and CPI on Tue/Wed.
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