Treasuries Hit a Grand Slam to Start the Week: June 23, 2025

Heightening geopolitical tensions over the weekend involving US attacks on Iranian nuclear sites have participants waiting for a potential escalation in the Middle East. But Treasuries are soaring, stocks are jumping and oil prices are plunging despite Washington’s direct involvement in the hostility. Bold statements from recently confirmed Fed Vice Chair for Supervision Michelle “Miki” Bowman are also helping markets. The central bank’s head of regulation delivered remarks similar to Governor Christopher Waller last week, signaling subdued inflation risk due to tariffs and was open to the possibility of an interest rate reduction next month. Even more significant at the long-end though, was her support of relaxing leverage regulations on financial institutions, which expands the pool of duration buyers. Data prints this morning were also supportive, as domestic flash PMIs and existing home sales beat expectations, bolstering confidence that the economy remains in solid shape, although the risks of cost pressures are lingering. Anecdotal evidence pointing to progress on a trade deal between the White House and New Delhi also buoyed trader sentiment. Investors are responding to the mix of information by picking up shares in most sectors, government debt across the curve, major commodity futures ex energy and lumber, bitcoins and forecast contracts. Folks are reducing their exposures to volatility protection instruments and the greenback while lumber is weakening as residential closings saw their worst May performance since 2009, during the depths of the great financial crisis.

US Economic Activity Expanded Further This Month

US manufacturing continued to expand at an unchanged pace as in May, but the services gains slowed slightly, according to this morning’s S&P Global’s Flash PMIs. The metric for goods-producing enterprises, at 52, matched the preceding month’s result and exceeded the consensus prediction of 51.1. Any reading above 50 implies expansion. The services sector, however, declined from 53.7 to 53.1 but surpassed the estimate of 52.9. The outlook for year-ahead production weakened, but sentiment remained above the two-and-a-half year low from two months ago. Firms reported that they are struggling to meet workloads, which resulted in growing back orders. In response, hiring increased at the fastest pace in more than a year. New orders for both factories and services increased, but the rate slowed slightly, with domestic demand partially offsetting a drop in export requests. Input expenses also climbed, a result of tariffs and more costly financing, wages and fuel.

Existing Homes Sales Better than Expected

Existing home sales climbed 0.8% m/m in May from 4 million seasonally adjusted annualized units (SAAU) in April to 4.03 million and outpaced the economist prediction of a decline to 3.96 million, according to the National Association of Realtors. The organization reports that the despite overall result growing after tanking 0.5% in April, sales are subdued due to high financing burdens. The Northeast, Midwest, and South rose 4.2%, 2.1% and 1.7% m/m. Conversely, closings sank 5.4% in the West. Across asset classes, the cooperative/condominium segment slackened by 2.7% m/m while single-family was up 0.3%. Conditions are turning to a seller’s market with inventory growing significantly, up 6.2% m/m and 20.3% year over year (y/y). It equates to a 4.6-month supply ratio at the present transaction rate compared to 4.4 in April.

Quadruple Combo Send Yields South

Treasury bulls are out in force today with safe-haven demand, rate cut probabilities, financial deregulation prospects, and trade deal progress pushing investors into the fixed-income complex. The quadruple combination is sending yields way south towards the basement as folks look to lock in the rates of the day. The mix is quelling fears of surging borrowing costs because of mounting government debt loads, with policymakers appearing committed to supporting economic growth by taking some pressure off the curve. Still, we have the Fed’s preferred inflation gauge on deck this week, and I’m expecting softening inflationary pressures to significantly boost odds of a quarter-point trim in July following the one-two punch of Waller and Bowman. Finally, should activity weaken meaningfully, the US central bank can resort to quantitative easing to bolster the landscape and support performance.

International Roundup

ECB Chief Weighs in on Strait of Hormuz Risks

European Central Bank (ECB) President Christine Lagarde warned this morning that inflation could gain steam if Iran follows through on its threat to close the Strait of Hormuz in retaliation for attacks on its nuclear facilities and other targets. Inflation wouldn’t be limited to energy commodities that are typically shipped through the maritime route as more costly oil and natural gas would have secondary effects, depending on the extent and length of the closure.

UK Goods Production Struggles

The UK’s good producing segment recorded its fifth month of contraction, but the rate of declined slowed its respective S&P Global Flash PMI climbing from 46.5 in May to 47.7, a five-month high. The Services PMI, after skirting with the contract threshold of 50 by posting a 50.9 score in May, accelerated to 51.3. Growth in output was primarily limited to services and manufacturers posted a new order decline driven by an eighth consecutive month of weakening exports.

Australia’s Economy Picks Up Despite Declining Exports

Australia’ economic growth has accelerated but remained modest with the Flash Composite Purchasing Managers’ Index hitting 51.2, up from 50.5 in May, a three-month high. The Manufacturing PMI was unchanged at 51, but its output component climbed from 49.8 to 50.4, moving above the contraction-expansion threshold of 50. The Services PMI also improved, moving from 50.6 to 51.3. The largest contributor to the headline was an increase in new orders despite a fall in requests from foreign customers. In other developments, business confidence hit a five-month high, inflation eased and hiring grew for the sixth-consecutive month.

Japan Also Expands

The au Jibun Bank Flash Japan Composite Output PMI climbed higher into expansion territory to 51.4 after May’s 50.2 result with both services and manufacturing strengthening. The Services Business Activity benchmark reached 51.5, up from 51 and the Manufacturing Output index ascended to 51.3 from May’s contraction level of 48.6. Overall new orders weakened at an accelerated pace while the decline in export demand slowed. Businesses were still cautious about the economy, a result of US tariffs and uncertainty regarding global trade. Input price pressure hit the lowest level in 14 months but was still significant. The headline result, more importantly, was supported by renewed increases in completed work and a rise in employment.

Singapore Cost Pressures Pick Up

Singapore’s Consumer Price Index (CPI) depicted retail costs in May growing 0.70% m/m and 0.80% y/y after April’s 0.30% monthly drop and 0.9% northern movement relative to the year-ago period. The y/y result matched the forecast. The Core CPI also eased on an annualized basis, falling from 0.70% to 0.60%, which matched the forecast. With the headline, the housing and utilities group became 2.4% more costly m/m followed by 0.5% gains from the health category and the information and communication group. Miscellaneous goods and services and the recreation, sport and culture group fell 0.5% and 0.4%.