Bond Market Update

Data Recon

• Total CPI increased 0.2% month-over-month, as expected. Core CPI, which excludes food and energy, rose 0.3% month-over-month, also as expected. Those readings left CPI up 2.7% year-over-year, unchanged from June, and core CPI up 3.1% year-over-year, up from 2.9% in June.
  • The key takeaway from the report lurks in the details. The headline readings look good, yet there are enough component indexes exhibiting tariff-induced inflation pressures (i.e., large month-over-month changes) that one can't walk away with an "all-clear" inflation signal from this report. It seems doubtful that all Fed officials will, given the 3.1% year-over-year reading for core CPI.
• Yield Check:
  • 2-yr: -2 bps to 3.73%
  • 3-yr: -2 bps to 3.70%
  • 5-yr: -2 bps to 3.80%
  • 10-yr: -1 bp to 4.26%
  • 30-yr: +1 bp to 4.85%

Lower Start Ahead of July CPI

• U.S. Treasuries are on track for a modestly lower start ahead of the 8:30 ET release of July CPI (Briefing.com consensus 0.2%; prior 0.3%) and Core CPI (Briefing.com consensus 0.1%; prior 0.3%). Treasury futures spent the night in a narrow range, slipping to lows in early evening trade, followed by a bounce that continued into the European session, but was also reversed. The modest selling has taken place alongside similar weakness in other sovereign debt while global equities have had a generally positive showing with Japan's Nikkei (+2.2%) reaching a fresh record. Crude oil holds a slim loss while the U.S. Dollar Index is up 0.1% at 98.59.
• Yield Check:
  • 2-yr: +2 bps to 3.77%
  • 3-yr: +2 bps to 3.74%
  • 5-yr: +2 bps to 3.84%
  • 10-yr: +2 bps to 4.29%
  • 30-yr: +2 bps to 4.86%

• News:
  • The Reserve Bank of Australia lowed its cash rate by 25 basis points to 3.60%, as expected. The central bank also lowered its terminal rate forecast to 2.90% from 3.20%.
  • The Asian session went by without any trades in Japan's 10-yr JGB for the first time since March 2023.
  • South Korea's President Lee will meet with President Trump on August 25.
  • Taiwan is seeking to establish a strategic partnership with the U.S. in order to receive a lower tariff rate.
  • Italy is aiming to reduce Chinese investments in strategic companies.
  • The EU is preparing its 19th package of sanctions against Russia.
  • Japan's July M2 Money Stock grew 1.0% yr/yr (expected 0.8%; last 0.9%).
  • India's July CPI was up 1.55% yr/yr (expected 1.76%; last 2.10%).
  • Singapore's Q2 GDP expanded 1.4% qtr/qtr, as expected (last -0.5%), growing 4.4% yr/yr (expected 4.3%; last 4.1%).
  • Australia's July NAB Business Confidence rose to 7 from 5 while Business Survey fell to 5 from 7.
  • Eurozone's August ZEW Economic Sentiment fell to 25.1 from 36.1 (expected 28.1).
  • Germany's August ZEW Economic Sentiment fell to 34.7 from 52.7 (expected 39.5) and ZEW Current Conditions fell to -68.6 from -59.5 (expected -65.0).
  • U.K.'s June Average Earnings Index + Bonus was up 4.6% yr/yr (expected 4.7%; last 5.0%). June three-month employment increased by 238,000 (last 134,000) and June Unemployment Rate remained at 4.7%, as expected. July Claimant Count decreased by 6,200 (expected 19,7000; last -15,500).
• Commodities:
  • WTI Crude: -0.6% to $63.55/bbl
  • Gold: -0.4% to $3390.90/ozt
  • Copper: +0.6% to $4.465/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1600
  • GBP/USD: +0.2% to 1.3449
  • USD/CNH: UNCH at 7.1944
  • USD/JPY: +0.3% to 148.48
• Data out Today:
  • 6:00 ET: July NFIB Small Business Optimism Index (actual 100.3; prior 98.6)
  • 8:30 ET: July CPI (Briefing.com consensus 0.2%; prior 0.3%) and Core CPI (Briefing.com consensus 0.1%; prior 0.3%)
  • 14:00 ET: July Treasury Budget (Briefing.com consensus -$140.0 bln; prior $27.0 bln)

Quiet Start to New Week

• Longer-dated Treasuries started the week on a modestly higher note while the 2-yr note lagged slightly, spending the session near its unchanged level. The Monday session was very quiet, as the market did not receive any top-tier data from the U.S. while the international data flow was also light. China narrowly avoided another deflationary reading of its CPI in July (0.0% yr/yr; expected -0.1%) while PPI (-3.6% yr/yr; expected -3.4%) remained in deflation for the 34th consecutive month. Treasuries faced some light pressure after their higher start, but the market found support near Friday's closing levels. The rest of the morning saw a slow bounce that eventually lifted action to fresh highs, but late trade saw a dip toward the day's starting levels. President Trump said in the late afternoon that the reduced tariff rates with China will be maintained for another 90 days to continue negotiations, but the reaction in the market was muted. Tomorrow's session will feature the July CPI (Briefing.com consensus 0.2%; prior 0.3%) report at 8:30 ET. Crude oil returned to $64/bbl while the U.S. Dollar Index rose 0.3% to 98.52.
• Yield Check:
  • 2-yr: -1 bp to 3.75%
  • 3-yr: -1 bp to 3.72%
  • 5-yr: -1 bp to 3.82%
  • 10-yr: -1 bp to 4.27%
  • 30-yr: -1 bp to 4.84%

• News:
  • Fed Governor Bowman (FOMC voter) supports three rate cuts this year.
  • President Trump aims to meet with Russia's President Putin in Alaska on Friday.
  • President Trump expressed hope that China will significantly increase its soybean purchases from the U.S.
  • South Korea's exports through the first ten days of August were down 4.3% yr/yr but chip exports rose 12.0%.
  • The U.S. government will charge NVIDIA (NVDA) and AMD (AMD) 15% of their revenue generated in China.
  • Treasury Secretary Bessent said that he expects trade issues to be largely sorted out by the end of October.
  • British Chancellor Reeves is reportedly considering a tax hike in the Autumn budget, though she previously pledged not to increase taxes on income, national insurance, and value-added.
  • China's July CPI was up 0.4% m/m (expected 0.3%; last -0.1%) and was unchanged yr/yr (expected -0.1%; last 0.1%). July PPI was down 3.6% yr/yr (expected -3.4%; last -3.6%).
  • Italy's July CPI was up 0.4% m/m, as expected (last 0.2%), rising 1.7% yr/yr, as expected (last 1.7%). June trade surplus reached EUR5.41 bln (expected surplus of EUR7.12 bln; last surplus of EUR6.10 bln).
• Commodities:
  • WTI crude: +0.2% to $64.00/bbl
  • Gold: -2.5% to $3404.90/ozt
  • Copper: -0.7% to $4.44/lb
• Currencies: 
  • EUR/USD: -0.3% to 1.1609
  • GBP/USD: -0.1% to 1.3432
  • USD/CNH: +0.1% to 7.1945
  • USD/JPY: +0.3% to 148.15
• The Day Ahead:
  • 6:00 ET: July NFIB Small Business Optimism Index (prior 98.6)
  • 8:30 ET: July CPI (Briefing.com consensus 0.2%; prior 0.3%) and Core CPI (Briefing.com consensus 0.1%; prior 0.3%)
  • 14:00 ET: July Treasury Budget (Briefing.com consensus -$140.0 bln; prior $27.0 bln)

Fresh Highs Set

• Recent action saw the Treasury complex rise past its opening highs with longer tenors remaining slightly ahead. Treasuries backed down from their starting highs in early trade, but found support once the 10-yr note approached its closing level from Friday. The rest of the morning saw a slow rise off lows that was followed by a recent push to fresh highs for the day. Equities, meanwhile, have remained inside a narrow range with the S&P 500 (+0.1%) hanging onto a slim gain.
• Yield Check:
  • 2-yr: -1 bp to 3.75%
  • 3-yr: -2 bps to 3.71%
  • 5-yr: -2 bps to 3.81%
  • 10-yr: -2 bps to 4.26%
  • 30-yr: -3 bps to 4.83%

Early Gains Narrowed

• U.S. Treasuries have dipped from their starting levels with 5s and shorter tenors now slightly lower for the day while 10s and 30s are hanging onto slim gains. The early dip from highs puts action right back at levels from Friday while equities are fighting to hold their early gains with the S&P 500 up just 0.1%. The market did not receive any data today, but July CPI (Briefing.com consensus 0.2%; prior 0.3%) and Core CPI (Briefing.com consensus 0.1%; prior 0.3%) will be reported tomorrow at 8:30 ET.
• Yield Check:
  • 2-yr: +1 bp to 3.77%
  • 3-yr: UNCH at 3.73%
  • 5-yr: UNCH at 3.83%
  • 10-yr: -1 bp to 4.27%
  • 30-yr: -2 bps to 4.83%