US 10YR FUTURE TECHS: (U5) Bear Threat Remains Present

Belgium has announced it will be looking to sell up to a combined E500mln of the following at its ORI operation this Friday, May 2:

• the 1.45% Jun-37 OLO (ISIN: BE0000344532)
• the 3.45% Jun-43 OLO (ISIN: BE0000359688)

March's Personal Income and Outlays report showed a strong partly tariff-related pickup in real consumption in March that couldn't offset a weaker quarter as a whole. That said, personal income dynamics were fairly robust at quarter-end, suggesting that despite collapsing sentiment, there is still scope for consumer demand to remain underpinned heading into Q2. The least we can say is that if there is a recession looming, it did not start in March based on these data.

• The Q1 advance GDP report out earlier in the session already showed the slowdown in real spending in goods (0.5% 3M/3M annualized in March, slowest since April 2024) and services (2.4%, slowest since October 2023).
• However, both categories actually accelerated on a monthly basis in March, particularly goods which jumped to 1.3% M/M from 0.4% for the fastest pace since January 2023 (up from 0.4% in Feb), with services spending up from flat in Feb to +0.4% (joint-best on an unrounded basis since November 2023). Durable goods led gains (3.2% M/M after 0.5% prior, with nondurables 0.4% nominal 0.4%), in turn led by motor vehicles and parts purchases (+10.4%) - a clear sign of tariff front-running.
• The real goods figures were boosted vs the nominal gains by deflation across both durables (-0.1% M/M) and nondurables (-0.7%).
• Overall, the Q1 weakness was due to poor performances in January and February (March merely brought spending back to December 2024 levels). To put this into perspective: real spending was +1.8% Q/Q in Q1, and if the next two months come in at zero growth M/M, May's quarterly real spending growth rate will be 2.8% as Jan and Feb drop out.
• Of course as March's real vs nominal readings suggest, the big question will be how quickly and by what magnitude tariffs feed through into prices, particularly for goods.
• In the meantime, real disposable income was solid, rising by 0.5% M/M in March (0.4% prior), a 14-month best, and boosting the 3M/3M annual rate to 2.7%, an 11-month high. Nominal disposable income growth actually slowed, but as noted elsewhere inflation was benign vs Feb.
• Nominal income growth slowed to 0.5% M/M (0.7% prior), despite a pickup in employee compensation (0.5% from 0.4% prior, a 4-month best), with personal current transfer receipts pulling back to -0.3% M/M from +2.1% prior. Ex-transfer receipts, real personal income rose 0.7%, up from 0.0% prior.
• As usual we take great caution with the household savings ratio, which dipped to 3.9% in March from 4.1% prior - but the prior figure was revised down substantially from 4.6% prior, in keeping with the volatility in this series. The prior 6-month average is 3.8% so while this has fallen from 2023-24 levels, it appears to have stabilized.

• -10,000 2QU5 97.25/97.31 call spds 1.5 ref 96.845
• +3,000 SFRU5 96.50/97.00 call spds 1.75 over 3QU5 96.87/97.25 call spd
• -2,500 SFRZ5 96.68 straddles, 73.0 ref 96.69
• -5,000 2QU5 97.25/97.31 call spds, 1.5 ref 96.84