Daily Commentary

MarketMinder’s View: As scrutiny and fear stalked recent sales of Japanese government bonds (JGBs) following sharply rising yields in May, talk of “bond vigilantes” stoking further rising yields and debt sustainability issues rose. Now? Not so much. Yields slid in June and demand at bond auctions has rebounded, much as we expected it to. “Demand at Japan’s auction of 10-year government bonds was stronger than the 12-month average, as expectations for rate hikes by the central bank recede and upward pressure on longer-maturity yields eases. The bid-to-cover ratio was at 3.51, compared with 3.66 at the previous auction last month and higher than the 12-month average of 3.14. In another sign of firm demand, the tail, or gap between average and lowest-accepted prices, came in at 0.03, compared with 0.01 at the previous sale.” So if you feared short-term yield moves plus an overhyped worry about bond auction weakness spelled trouble for JGBs, this should be a moment to rethink that theory.

MarketMinder’s View: As expected, and after an overnight amendment party, the Senate pushed through the “One Big Beautiful Bill Act” on a 51-50 vote with Vice President JD Vance casting the tie-breaking vote. All 50 Democrats and 3 Republicans voted against the bill, which largely extends the current tax code, trims Medicaid spending and eases taxation of tips and Social Security benefits through scaled-up deductions. The final bill does not have the wind-down of the Public Company Accounting Oversight Board after the Senate Parliamentarian shot that provision down as being outside the scope of budget reconciliation. It does not have the revenge tax on foreign businesses, either, as this was scrapped following the OECD’s agreement to waive it on US firms. And even the Medicaid cuts were limited both in terms of when they take effect and their scope, which was softened some by increasing hospital funding under other legislative apparatus, which this article details well. Now the proposal heads back to the House, where it faces more hurdles. “The sprawling package still faces challenges in the House due to deeper cuts to federal Medicaid spending, an accelerated phase-out of clean-energy tax breaks and changes to a deal to raise the cap on state and local tax (SALT) deductions. At least six House Republicans have threatened to oppose the Senate bill because of the changes to the House-passed legislation and Rep. Thomas Massie (R-Ky.) is viewed as likely to vote no because the package would add more than $3 trillion to the debt.” We do expect this to pass, ultimately, but we don’t see it as a gamechanger. For one, all the estimates of its budgetary effects are just that—long-term estimates, subject to error and change by future Congresses. And given most of these tax changes are pretty small scale (as compared to the present law) and have played out under a media microscope, we think the market reaction is likely to be pretty small and nondescript.

MarketMinder’s View: This piece casts the Institute for Supply Management’s US manufacturing purchasing managers’ index (PMI) coming in at a slightly contractionary 49.0 in June (readings below 50 indicate contraction), the fourth straight such read, as entirely a product of tariff uncertainty. Which we guess is fair enough. But before extrapolating this to spell broader economic weakness as this does, note: Manufacturing is a tiny slice of the US economy and, it is worth noting, was sub-50 in every single month during 2024. (Source: FactSet.) That didn’t stop America’s overall economy from growing—for really two reasons. One, PMIs are breadth indicators, showing the share of firms reporting any growth. They say nothing of magnitude, so a minority of firms growing fast can offset a majority seeing slight contraction. Two, services are so much bigger. And those firms are hit much less by tariffs. So while it may be fair to view manufacturing data through this lens, it is a mistake to overrate the effect on the larger economy.