Quiver Stock Morning Market Research: U.S. Long-Bond Auction Calms Deficit Fears, Stocks Rally on Disinflation Signals

Barchart·06/16/2025 22:22:11

Treasuries extended gains after a robust $22 billion auction of 30-year U.S. debt, with the benchmark yield awarded at 4.844%, slightly below the when-issued rate. The move alleviated concerns that soaring deficits would drive investors away from long maturities, while the dollar sank to a three-year low and equity markets rallied on easing inflation pressures. “This marks the second straight day of softer price data,” said Chris Zaccarelli at Northlight Asset Management. “With PPI up just 0.1% in May, the Fed can afford to remain patient and assess how tariffs and trade talks influence core inflation dynamics.” Meanwhile, President Trump renewed calls for faster rate cuts but stopped short of replacing Fed Chair Jerome Powell. Market Overview:

• 30-year Treasury auction awarded at 4.844%, beating when-issued expectations.
• Bloomberg Dollar Spot Index fell to three-year lows on bond strength.
• S&P 500 tech stocks led gains as Oracle hit record highs on upbeat guidance.

Key Points:

• Producer price index’s 0.1% rise in May contrasted with forecasts of 0.2%.
• Inflation data keeps June and July Fed cuts priced out, with ~45 bps easing seen for 2025.
• Trump hints at raising U.S. auto tariffs to support domestic manufacturing.

Looking Ahead:

• Markets await June 11 CPI report to confirm disinflation trend.
• Potential auto tariff hike could roil equity and bond markets.
• Fed communications blackout begins June 7, limiting policy commentary.

Bull Case:

• Strong demand for the $22 billion 30-year Treasury auction, with a yield of 4.844% below expectations, signals investor confidence in long-term U.S. debt despite soaring deficits.
• Lower-than-expected producer price index rise of 0.1% in May suggests easing inflation pressures, giving the Federal Reserve room to remain patient on rate hikes.
• Decline of the Bloomberg Dollar Spot Index to a three-year low supports U.S. export competitiveness and may boost multinational corporate earnings.
• Equity markets rallied, led by tech stocks like Oracle, reflecting optimism about economic growth and corporate earnings amid easing inflation.
• Strong Treasury demand alleviates concerns about borrowing costs, helping to stabilize government financing and broader financial markets.
• Potential extension of the 90-day tariff pause and positive trade talks could further reduce geopolitical risks and support market sentiment.

Bear Case:

• Persistently high budget deficits and rising debt levels raise concerns about the long-term sustainability of U.S. fiscal policy, potentially pressuring Treasury yields higher in the future.
• Trump’s threat to hike auto tariffs introduces geopolitical risks that could disrupt equity and bond markets, particularly affecting automakers and related sectors.
• Inflation data, while currently muted, may accelerate later in the year due to tariff-related price pressures, complicating the Fed’s policy outlook.
• Equity risk premium near historic lows suggests stocks are richly valued relative to Treasuries, increasing vulnerability to market corrections.
• Fed communications blackout starting June 7 limits clarity on future monetary policy, potentially increasing market volatility and uncertainty.
• Investor caution ahead of key inflation reports and tariff developments could dampen risk appetite and slow market momentum.

On the trade front, Trump warned he may boost auto duties to spur onshore manufacturing, sending shares of GM, Ford and Stellantis to session lows. The prospect of higher tariffs added a layer of geopolitical risk even as bond yields eased and equities held firm. Analysts note that the equity risk premium is near its lowest since 2002, suggesting stocks are richly valued relative to Treasuries. “Investors are questioning what will drive markets beyond current highs,” said Rick Gardner at RGA Investments, citing potential catalysts like renewed China trade talks, tax-cut extensions and eventual rate cuts.

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