Bond Market Update

Treasuries Dip While Investors Stargaze

• U.S. Treasuries ended the week on a modestly lower note with the long bond dipping from its June high, though the complex remained in positive territory for the week. The trading day started on a slightly lower note, followed by an early extension of the opening losses alongside a rise in the price of oil after an overnight dip below $83.50/bbl. However, the bounce in crude met resistance in mid-morning trade after the market received more reassurances that a deal with Iran is close to being signed. Crude oil returned to $85/bbl by the late morning while Treasuries climbed back to their starting levels at the same time. Midday trade was confined to a sideways range near today's opening levels with all eyes glued to the public debut of SpaceX (SPCX 165.73, +30.73, +22.76%), which saw spectacular interest with more than a quarter billion shares traded during the first couple hours on the market. Today's dip briefly lifted the 30-yr yield back above its 50-day moving average (4.977%), but the intraday bounce returned the 30-yr yield below that level, resulting in a finish at a one-week low. The long bond underperformed for the week, though this followed last week's show of relative strength. Crude oil lost more than $5/bbl for the week, recording its lowest pit close since mid-April, while the U.S. Dollar Index dipped 0.1% to 99.74, losing 0.3% for the week after briefly tagging a 10-week high yesterday.
• Yield Check:
  • 2-yr: +2 bps to 4.09% (-7 bps this week)
  • 3-yr: +1 bp to 4.13% (-8 bps this week)
  • 5-yr: +2 bps to 4.21% (-7 bps this week)
  • 10-yr: +2 bps to 4.49% (-5 bps this week)
  • 30-yr: +2 bps to 4.98% (-2 bps this week)

• News:
  • President Trump told Axios that a deal with Iran could be signed over the weekend or on Monday.
  • The Bank of Japan is expected to announce its next rate hike next week while the Reserve Bank of Australia is expected to announce a policy hold.
  • Bank of Korea Governor Shin said that interest rates need to be raised "before it is too late."
  • The market expects the European Central Bank to hold its policy steady in July unless there is a renewed rise in energy prices.
  • Germany's Economic Ministry noted that momentum in the domestic economy slowed notably in Q2.
  • China's May New Loans reached CNY520.0 bln (expected CNY450.0 bln; last -CNY10.0 bln), May Outstanding Loan grew 5.5% yr/yr, as expected (last 5.6%), and May total social financing reached CNY2.03 trln (expected CNY1.87 trln; last CNY620.0 bln).
  • Japan's April Industrial Production was up 0.5% m/m (expected 0.8%; last -0.4%) and Capacity Utilization was down 0.8% m/m (last -1.2%).
  • New Zealand's May Business PMI hit 49.9 (last 50.4).
  • Germany's final May CPI was down 0.2% m/m, as expected (last 0.6%) but up 2.6% yr/yr, as expected (last 2.9%).
  • U.K.'s April GDP contracted 0.1% m/m, as expected (last 0.3%) but was up 1.2% yr/yr (expected 1.3%; prior 1.2%).
  • France's final May CPI was up 0.1% m/m, as expected (last 1.0%), rising 2.4% yr/yr, as expected (last 2.2%).
  • Spain's May CPI was up 0.1% m/m, as expected (last 0.4%), rising 3.2% yr/yr, as expected (last 3.2%). May Core CPI was up 3.0% yr/yr (expected 2.9%; last 2.8%).
• Today's Data:
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for June increased to 48.9 (Briefing.com consensus: 46.2) from the final reading of 44.8 for May, which was an historic low. In the same period a year ago, the index stood at 60.7.
    • The key takeaway from the report is that the improved readings revolved around the early-month easing in gasoline prices, which was a relief factor felt by consumers across age, education, and political party. Still, there were reported concerns about higher inflation remaining stubborn.
• Commodities:
  • WTI crude: -3.3% to $84.88/bbl
  • Gold: +2.8% to $4239.20/ozt
  • Copper: +2.6% to $6.44/lb
• Currencies:
  • EUR/USD: UNCH at 1.1575
  • GBP/USD: UNCH at 1.3417
  • USD/CNH: UNCH at 6.7627 
  • USD/JPY: +0.2% to 160.22
• The Week Ahead:
  • Monday: June Empire State Manufacturing survey (Briefing.com consensus 12.5; prior 19.6) at 8:30 ET; May Industrial Production (Briefing.com consensus 0.2%; prior 0.7%) and Capacity Utilization (Briefing.com consensus 76.2%; prior 76.1%) at 9:15 ET; and June NAHB Housing Market Index (Briefing.com consensus 37; prior 37) at 10:00 ET
  • Tuesday: May Housing Starts (Briefing.com consensus 1.440 mln; prior 1.465 mln), Building Permits (Briefing.com consensus 1.410 mln; prior 1.442 mln), May Import Prices (prior 1.9%), Import Prices ex-oil (prior 0.8%), Export Prices (prior 3.3%), and Export Prices ex-agriculture (prior 3.4%) at 8:30 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 10.8%) at 7:00 ET; May Retail Sales (Briefing.com consensus 0.5%; prior 0.5%) and Retail Sales ex-auto (Briefing.com consensus 0.5%; prior 0.7%) at 8:30 ET; April Business Inventories (prior 1.5%) and May Pending Home Sales (Briefing.com consensus 0.9%; prior 1.4%) at 10:00 ET; weekly crude oil inventories (prior -7.23 mln) at 10:30 ET; and June FOMC Rate Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%)
  • Thursday: June Philadelphia Fed survey (Briefing.com consensus 10.0; prior -0.4), weekly Initial Claims (Briefing.com consensus 226,000; prior 229,000), and Continuing Claims (prior 1.795 mln) at 8:30 ET; weekly natural gas inventories (prior 108 bcf) at 10:30 ET; and April Net Long-Term TIC Flows (prior $81.3 bln) at 16:00 ET
  • Friday: Bond and equity markets closed for Juneteenth

Opening Levels Revisited

• U.S. Treasuries hover near their starting levels after rising off their lows during the past two hours. The Treasury complex extended its starting losses during the first hour of action alongside a rise in crude oil, but oil has returned to levels seen in early morning action, prompting a concurrent bounce in Treasuries. WTI crude is now back below $85 amid guarded optimism that the Iran conflict is winding down after Pakistan's prime minister confirmed that the U.S. and Iran agreed on the text of a peace agreement. Assuming no late volatility, Treasuries are on track to end the week in positive territory with the 10-yr yield currently down six basis points from last Friday. Equities continue trading modestly higher after SpaceX (SPCX 166.27, +31.27, +23.16%) made history with its public debut, instantly becoming one of the most valuable companies in the U.S.
• Yield Check:
  • 2-yr: +1 bp to 4.08%
  • 3-yr: +1 bp to 4.13%
  • 5-yr: +1 bp to 4.21%
  • 10-yr: +2 bps to 4.48%
  • 30-yr: +2 bps to 4.97%

Data Recon

• The preliminary reading for the University of Michigan Consumer Sentiment Index for June increased to 48.9 (Briefing.com consensus: 46.2) from the final reading of 44.8 for May, which was an historic low. In the same period a year ago, the index stood at 60.7.
  • The key takeaway from the report is that the improved readings revolved around the early-month easing in gasoline prices, which was a relief factor felt by consumers across age, education, and political party. Still, there were reported concerns about higher inflation remaining stubborn.
• Yield Check:
  • 2-yr: +2 bps to 4.09%
  • 3-yr: +2 bps to 4.14%
  • 5-yr: +3 bps to 4.22%
  • 10-yr: +3 bps to 4.49%
  • 30-yr: +3 bps to 4.98%

Pulling Back

• U.S. Treasuries trade on their lows after widening their opening losses. Treasuries started the day on a slightly lower note, but the early losses have roughly been doubled since the start. The selling has reversed a portion of yesterday's advance, but the 10-yr note and shorter tenors remain on track to finish the week in positive territory while the long bond is little changed for the week. Equities are off to a flat start with the S&P 500 (+0.1%) hovering just above its flat line as investors watch the debut of SpaceX (SPCX).
• Yield Check:
  • 2-yr: +2 bps to 4.09%
  • 3-yr: +3 bps to 4.15%
  • 5-yr: +3 bps to 4.22%
  • 10-yr: +3 bps to 4.50%
  • 30-yr: +3 bps to 4.98%

 Quiet Start Ahead

• U.S. Treasuries are on track for a flat start after a quiet night in the futures market. Treasury futures dipped out of the gate, spending the night in a sideways range before seeing some brief strength after the start of the European session. President Trump said that the U.S. made "a great settlement" with Iran while Israel's Prime Minister Netanyahu said that Israel is not a party to the U.S.-Iran agreement. However, capital markets have maintained a positive tone. Overnight action saw the release of a modest batch of data, which included solid May total social financing figures from China and an in-line reading of the U.K.'s GDP for April (-0.1% month-over-month). Crude oil has deepened its pullback, falling to a level not seen since mid-April while the U.S. Dollar Index is down 0.1% at 99.74.
• Yield Check:
  • 2-yr: -1 bp to 4.06%
  • 3-yr: -1 bp to 4.11%
  • 5-yr: -1 bp to 4.18%
  • 10-yr: UNCH at 4.46%
  • 30-yr: +1 bp to 4.96%

• News:
  • The Bank of Japan is expected to announce its next rate hike next week while the Reserve Bank of Australia is expected to announce a policy hold.
  • Bank of Korea Governor Shin said that interest rates need to be raised "before it is too late."
  • The market expects the European Central Bank to hold its policy steady in July unless there is a renewed rise in energy prices.
  • Germany's Economic Ministry noted that momentum in the domestic economy slowed notably in Q2.
  • China's May New Loans reached CNY520.0 bln (expected CNY450.0 bln; last -CNY10.0 bln), May Outstanding Loan grew 5.5% yr/yr, as expected (last 5.6%), and May total social financing reached CNY2.03 trln (expected CNY1.87 trln; last CNY620.0 bln).
  • Japan's April Industrial Production was up 0.5% m/m (expected 0.8%; last -0.4%) and Capacity Utilization was down 0.8% m/m (last -1.2%).
  • New Zealand's May Business PMI hit 49.9 (last 50.4).
  • Germany's final May CPI was down 0.2% m/m, as expected (last 0.6%) but up 2.6% yr/yr, as expected (last 2.9%).
  • U.K.'s April GDP contracted 0.1% m/m, as expected (last 0.3%) but was up 1.2% yr/yr (expected 1.3%; prior 1.2%). April Manufacturing Production was up 0.4% m/m (expected -0.2%; last 1.2%), April trade deficit reached GBP26.05 bln (expected deficit of GBP22.50 bln; last deficit of GBP27.22 bln), April Industrial Production was unchanged m/m (expected 0.1%; last -0.2%), falling 0.2% yr/yr (expected -0.1%; last 0.0%). April Manufacturing Production was up 0.4% m/m (expected -0.2%; last 1.2%), rising 1.0% yr/yr (expected 0.4%; last 1.2%).
  • France's final May CPI was up 0.1% m/m, as expected (last 1.0%), rising 2.4% yr/yr, as expected (last 2.2%).
  • Spain's May CPI was up 0.1% m/m, as expected (last 0.4%), rising 3.2% yr/yr, as expected (last 3.2%). May Core CPI was up 3.0% yr/yr (expected 2.9%; last 2.8%).
• Commodities:
  • WTI Crude: -3.6% to $84.55/bbl
  • Gold: +2.7% to $4225.00/ozt
  • Copper: +1.8% to $6.385/lb
• Currencies:
  • EUR/USD: UNCH at 1.1576
  • GBP/USD: UNCH at 1.3416
  • USD/CNH: UNCH at 6.7625
  • USD/JPY: +0.1% to 160.13
• Data out Today:
  • 10:00 ET: Preliminary June University of Michigan Consumer Sentiment (Briefing.com consensus 46.2; prior 44.8)