Bonds, US Futures Rise as Debt-Deal Lobby Ramps Up: Markets Wrap

(Bloomberg) — US Treasury and stock futures advanced on hopes Congress would pass a debt agreement to avert a default as the White House and Republican congressional leaders ramped up pressure to support the deal.

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Treasury yields have fallen across the five- to 30-year debt curve. Short-term Treasury yields – most at risk of default – were signaled lower in early trading as they extended declines from recent highs.

The clock is ticking as backers of the agreement have just one week to pass it through Congress before defaulting on June 5. President Joe Biden has personally called on lawmakers to support the bill, with a vote by the House of Representatives likely Wednesday, before it goes to the Senate. Even if the deal is approved, traders have to deal with risks including a possible Fed rate hike, a slowdown in China and a liquidity drain as the Treasury replenishes its cash reserves.

Contracts in the S&P 500 and Nasdaq 100 rose 0.3% and 0.5%, respectively, while European stocks were little changed. Nestle SA has fallen after Swiss food maker CFO Francois-Xavier Rogeris said he was stepping down. The Asian stock index fell as a key gauge of Hong Kong-listed Chinese stocks on their way into a bear market. The Hang Seng China Enterprises Index was set to drop for a fifth day, bringing its losses from the January 27 peak to more than 20%.

The dollar, which benefited from concern over the legal borrowing limit, erased early declines to rally against most of its G10 peers. However, the US currency index remained below the two-month high it hit last week. The offshore yuan weakened, crossing 7.1 against the dollar for the first time since November.

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Assuming Congress approves the debt deal, the Treasury Department could sell more than $1 trillion in notes through the end of the third quarter to boost its cash balances, according to some estimates.

“There is a high potential for liquidity drain in the system and it is certainly not constructive for risk markets,” Vishwanath Tirubator, senior fixed-income analyst at Morgan Stanley, said on Bloomberg TV.

For Fed policymakers, the details of the deal will be another consideration when they meet in June.

We believe this transaction reinforces a 25 basis point hike at the FOMC meeting on June 13-14. With banking sector pressures fading, a potential default was the only thing that could have prevented a price hike next month, Win Thein, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note. “Importantly, the rate cuts by the end of the year are fully priced in now, as they should have been a long time ago.”

In commodities, oil fell and gold fell to its lowest level since March.

Main events this week:

• Eurozone Economic Confidence, Consumer Confidence, Tuesday

• US Consumer Confidence, Tuesday

• Richmond Federal Reserve Chair Thomas Barkin in an interview with NABE as part of our Monetary Policy Webinar Series, Tuesday

• China manufacturing PMI, non-manufacturing PMI, Wed

• US Employment Opportunities, Wed

• The Federal Reserve releases the Beige Book Economic Survey, Wednesday

• Philadelphia Federal Reserve Bank President Patrick Harker had a live chat about global macroeconomic and monetary conditions, on Wednesday

• Boston Federal Reserve Chair Susan Collins and Federal Reserve Bank Governor Michelle Bowman speak in Boston, Wednesday.

• The European Central Bank issues its financial stability review, Wednesday

• China Caixin Manufacturing Purchasing Managers, Thursday

• Eurozone HCOB Eurozone Manufacturing PMI, CPI, Unemployment, Thursday

• US Construction Spending, Initial Jobless Claims, ISM Manufacturing, Light Vehicle Sales, Thursday

• The European Central Bank will release a report on its monetary policy meeting on May 3-4. European Central Bank President Christine Lagarde speaks at the German Savings Banks Conference, Thursday

• Philadelphia Fed President Patrick Harker speaks about the economic outlook at a NABE webinar, Thursday

• US Unemployment, Nonfarm Payrolls, Friday

Some of the major movements in the markets:

Stores

• The Stoxx Europe 600 Index was down 0.1% as of 8:11 a.m. London time.

• S&P 500 futures rose 0.3%

• Nasdaq 100 futures rose 0.5%.

• Futures on the Dow Jones Industrial Average rose 0.1%.

• MSCI Asia-Pacific index changed little

• The MSCI Emerging Markets Index has changed slightly

currencies

• The Bloomberg Spot Dollar Index rose 0.1%.

• The euro fell 0.2 percent to $1.0687

• The Japanese yen rose 0.1% to 140.25 per dollar

• The offshore yuan fell 0.2 percent to 7.1013 per dollar

• The British pound was little changed at $1.2343

Digital currencies

• Bitcoin rose 0.5% to $27,828.75

• Ether rose 0.5% to $1,903.74

bonds

• The yield on the 10-year Treasury fell by four basis points, to 3.75%.

• Germany’s 10-year yield fell three basis points to 2.40%.

• The UK 10-year yield fell five basis points to 4.28%.

goods

• Brent crude fell 0.6 percent to $76.57 a barrel

• Spot gold fell 0.3 percent to $1,937.89 an ounce

This story was produced with help from Bloomberg Automation.

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