Bond Market Update

Auction Reaction

• U.S. Treasuries hover just above session lows that were reached in mid-morning trade, having spent the past couple hours in a sideways range. Longer tenors have faced some impulse selling in immediate reaction to today's $13 bln 20-yr bond reopening, which met ok, but not great demand. The sale drew a high yield of 5.163%, which tailed the when-issued yield by half of a basis point, but the bid-to-cover ratio (2.64x vs 2.65x) was close to average while indirect takedown (69.1%) was a bit better than average (64.7%), somewhat making up for the headline miss.
• Yield Check:
  • 2-yr: +4 bps to 4.30%
  • 3-yr: +4 bps to 4.34%
  • 5-yr: +3 bps to 4.40%
  • 10-yr: +3 bps to 4.65%
  • 30-yr: +2 bps to 5.15%

Treasury Auction Results

• $13 bln 20-year Treasury bond reopening:
  • Auction results:
    • High yield: 5.163% (When-Issued: 5.158%)
    • Bid-to-cover: 2.64
    • Indirect bid: 69.1%
    • Direct bid: 16.2%
  • Average results of previous 12 auctions:
    • High yield: 4.808%
    • Bid-to-cover: 2.65
    • Indirect bid: 64.7%
    • Direct bid: 24.8%

Treasury Auction Preview

• $13 bln 20-year Treasury bond reopening (results at 13:00 ET):
  • Prior auction results:
    • High yield: 4.927%
    • Bid-to-cover: 2.75
    • Indirect bid: 71.6%
    • Direct bid: 19.9%
  • Average results of previous 12 auctions:
    • High yield: 4.808%
    • Bid-to-cover: 2.65
    • Indirect bid: 64.7%
    • Direct bid: 24.8%

Recent Selling Continues

• U.S. Treasuries trade on their lows after widening their starting losses. The Treasury complex started the session just below the unchanged level, followed by a brief attempt at turning positive, which was rebuffed in quick order. Once again, shorter tenors have been at the forefront of the early selling due in part to a continued rise in WTI crude, which has climbed past $87/bbl. With today's early selling, yields on the 7-yr note and shorter tenors are now at fresh highs for the year while yields on 10s and 30s are now within five basis points of 2026 highs of their own. Equities are facing some early softness with the S&P 500 (-0.2%) and Nasdaq (-0.5%) showing losses while the Dow (+0.2%) outperforms.
• Yield Check:
  • 2-yr: +5 bps to 4.31%
  • 3-yr: +5 bps to 4.35%
  • 5-yr: +4 bps to 4.41%
  • 10-yr: +3 bps to 4.66%
  • 30-yr: +2 bps to 5.15%

Inching Lower

• U.S. Treasuries are on track for a slightly lower start after retreating through the first two sessions of the week. The early dip start is set to follow a night of sideways trade in the futures market that kept the 10-yr yield inside a two-basis point range. Overnight movement in other sovereign debt was also limited with a mild downside bias. Investors received only a small dose of news since yesterday afternoon, and the economic data flow was on the light side. The U.K.'s inflation report for June was close to expectations ahead of next week's Bank of England decision, which is expected to be a hold. Once again, the U.S. session will be free of top-tier data, but the U.S. Treasury will hold a $13 bln 20-yr bond reopening this afternoon. Crude oil has climbed above $87/bbl while the U.S. Dollar Index is flat at 101.16.
• Yield Check:
  • 2-yr: +1 bp to 4.27%
  • 3-yr: +1 bp to 4.31%
  • 5-yr: +1 bp to 4.38%
  • 10-yr: +1 bp to 4.64%
  • 30-yr: +1 bp to 5.14%

• News:
  • Bank Indonesia left its policy rate at 5.75% against some expectations for a hike.
  • Japan is reportedly looking to relax lending rules for banks while also encouraging pension funds to invest in alternative assets.
  • Secretary of State Rubio met with China's Foreign Minister Yi in Manila.
  • British Prime Minister Burnham will seek to reduce taxes for hospitality businesses while also calling for fiscal restraint.
  • The French parliament banned the use of social media for children under 15.
  • Japan's June trade deficit reached JPY880 bln (expected deficit of JPY560 bln; last deficit of JPY220 bln) as imports grew 25.4% yr/yr (expected 21.0%; last 12.5%) and exports rose 19.3% yr/yr (expected 18.6%; last 16.8%).
  • South Korea's June PPI was unchanged m/m (last 1.0%), rising 8.6% yr/yr (last 8.6%).
  • Australia's June MI Leading Index was unchanged m/m (last -0.1%).
  • New Zealand's June Credit Card Spending was up 3.1% yr/yr (last 4.2%). 
  • U.K.'s June CPI was up 0.1% m/m, as expected (last 0.2%), growing 2.6% yr/yr (expected 2.7%; last 2.8%). June Core CPI was up 0.3% m/m (last 0.3%), rising 2.6% yr/yr (expected 2.5%; last 2.6%). June Input PPI was down 2.0% m/m (expected -2.7%; last 0.6%) and Output PPI was unchanged m/m (expected -0.1%; last 0.3%). June House Price Index was up 2.7% (expected 3.2%; last 3.8%).
• Commodities:
  • WTI Crude: +3.4% to $87.24/bbl
  • Gold: +1.2% to $4123.90/ozt
  • Copper: -0.6% to $6.515/lb
• Currencies:
  • EUR/USD: UNCH at 1.1405
  • GBP/USD: UNCH at 1.3369
  • USD/CNH: +0.1% to 6.7743
  • USD/JPY: -0.1% to 163.04
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 1.9%; prior -2.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -1.69 mln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results