US TSY FUTURES: June'25-September'25 Roll Update: 5Y Leads

The headline NY Fed services activity index was weaker than expected in April as it failed to bounce, suggesting little upside to ISM Services after the weaker than expected 50.8 for March. However, the expectations components are particularly negative and suggest the rare pessimism in Tuesday’s manufacturing counterpart was no anomaly.  

• The NY Fed services business activity index was weaker than expected in April as it failed to bounce and instead dipped to -19.8 (cons -12.1, 4 responses) after -19.3 in March.
• Other important details within the report were notably glum, with the current business climate falling further to -60.7 from -51.7 (-21.8 in Jan having averaged -24.5 in 2024 for example) to its lowest since Feb 2021.
• The six-month ahead readings broadly echo the sharp decline seen in its manufacturing counterpart released yesterday with its weakest outlook since Sep 2001.
• Here, six-month ahead business activity fell from -3.3 to -26.6 (vs 30.3 in Jan and 21.1 in 2024) for its lowest since Apr 2020 and before that Feb 2009.
• Expectations of the business climate six-months ahead meanwhile fell from -26.9 to -50.0 (vs 13.2 in Jan, 4.6 in 2024) for the lowest since Mar 2009.
• From the press release (in full here): “The future employment index turned negative. The future supply availability index dropped to -36.1, with 44 percent of firms expecting supply availability to be worse in six months. Capital spending plans turned sharply negative.”
• As with the manufacturing report, survey responses were collected between Apr 2-9 and therefore captured initial fallout from Apr 2 “Liberation Day” tariff announcements and the various changes since then.  

• Reoffer: 99.974 to yield 3.281%
• Size: E8bln (MNI expected E7-13bln)
• Spread set earlier at 3.15% Nov-31 BTP +13bps (guidance was +14bps area)
• Books closed in excess of E50bln (inc E5.55bln JLM interest)
• Hedge ratio: 108% vs 3.15% Nov-31 BTP. Spot ref 100.12 / 3.151%
• Maturity: 15 July 2032
• ISIN: IT0005647265
• Coupon: 3.25%. Short first on 15 July 2025

30-year BTPei:

• Reoffer: 99.268 to yield 2.601%
• Spread set earlier at 0.15% May-51 BTPei RY +36bps (guidance was +38bps area)
• Size: E3bln WNG
• Books closed in excess of E53bln (inc E3.1bln JLM interest)
• Hedge ratio: 119% vs 0.15% May-51 BTPei. Spot ref 99.268 / 2241%
• Maturity: 15 May 2056
• ISIN: IT0005647273
• Coupon: 2.55%. First full on 15 May

• Settlement: 25 April 2025 (T+5)
• Bookrunners: BBVA / BofA / GSBE SE / JPM (DM/B&D) / Natixis / Societe Generale
• Timing: TOE 13:46BST / 14:46CET

March retail sales largely met expectations, with the headline growth figure of 1.4% M/M in-line and up from 0.2% prior. The core categories were more mixed, but this was more than offset by very strong revisions, particularly for the GDP-input Control Group which rose by 0.4% (0.6% consensus) after an upward revision to prior to 1.3% (was 1.0%). Overall this will probably be viewed as a positive report in terms of upward revisions to GDP estimates for Q1.

• The first thing that was being eyed in this report was the degree of tariff front-running pre-"Liberation Day" (Apr 2). We saw it in some areas but perhaps not as much as we might have expected in others.
• Most prominent in front-running was vehicle sales (which are ex-control group) seeing a 5.7% M/M rise, a 26-month best, following two months of contraction (the overall motor vehicles/parts category rose 5.3%). This was well-flagged by industry sales data as buyers rushed to dealerships to beat tariff-related price hikes, and as the largest category in retail sales easily drove the overall retail sales advance (and is why ex-auto sales slowed to 0.5% M/M vs 0.7% prior).
• Elsewhere, electronics/appliance stores saw 0.8% growth, fastest in 5 months. Clothing purchases and sporting goods picked up 0.4% and 2.4% M/M respectively - each, again, after a couple of months of contraction. Building materials/gardening (also ex-control group) jumping 3.3% M/M after 5 consecutive monthly contractions, though that may have been partly related to improving weather after a tough start to the year.
• On that note, food services and drinking places (the 3rd-largest retail category) saw a sharp rebound to 1.8% M/M, the best rate in 26 months - from -0.8% prior (which reflected a substantial upward revision from -1.5%). There had been some concern that this category's weakness in February was a sign of sharply weakening discretionary spending in a category that isn't directly impacted by tariff front-running, but conditions here don't appear as recessionary as previously thought.
• But we did see slower growth in many categories in March vs Feb: these included non-store retailers, ie online shopping (0.1% after 3.2% for what is the 2nd largest retail sales category), with miscellaneous store retailers, furniture, and health/personal care sales also slower. Food and beverage sales growth was steady at 0.2%, while gasoline sales 2.5% though that was primarily a price effect (gas CPI fell 6+% in the month).