Bond Market Update

Long End Leads Early Weakness

• U.S. Treasuries are on track for a lower start with longer tenors expected to pace the early weakness. Treasury futures fell to lows at the start of the overnight session, followed by a slow recovery that briefly helped shorter tenors return to little changed before renewed weakness sent them to fresh lows. Overnight action saw a mixed showing from equities in Asia and Europe amid a modest dose of data. China's growth figures for May were mixed, as Industrial Production (actual 5.6%; expected 6.2%) missed expectations while Retail Sales (actual 3.7%; expected 3.0%) beat estimates. Elsewhere, Bank of Japan Governor Ueda acknowledged that a July rate hike is a possibility and that the central bank is likely to reduce its purchases by a "considerable volume" at the upcoming meeting. In Europe, there is growing focus on upcoming elections in France with polls showing that Marine Le Pen's National Rally is on track to receive about 35% of the vote while President Macron's party is expected to come in third place with about 19% of the vote. Crude oil holds a modest gain while the U.S. Dollar Index is flat, hovering at 105.54.
• Yield Check:
  • 2-yr: +4 bps to 4.72%
  • 3-yr: +4 bps to 4.46%
  • 5-yr: +4 bps to 4.27%
  • 10-yr: +5 bps to 4.26%
  • 30-yr: +5 bps to 4.40%

• News:
  • The People's Bank of China left its medium-term lending facility rate at 2.50%.
  • China and Australia agreed to enhance their free trade agreement.
  • The European Central Bank has reportedly not discussed activating the transmission protection instrument, which is aimed at preventing bond spreads from widening significantly.
  • European Central Bank policymaker Vucic said that inflation must improve to allow for a rate cut in September.
  • China's May Industrial Production was up 5.6% yr/yr (expected 6.2%; last 6.7%), Retail Sales were up 3.7% yr/yr (expected 3.0%; last 2.3%), and Fixed Asset Investment rose 4.0% yr/yr (expected 4.2%; last 4.2%). May Unemployment Rate remained at 5.0%, as expected, and May House Prices were down 3.9% yr/yr (last -3.1%).
  • Japan's April Core Machinery Orders were down 2.9% m/m, as expected (last 2.9%) but up 0.7% yr/yr (expected -0.1%; last 2.7%).
  • Australia's May job advertisements were down 2.1% m/m (last -2.3%).
  • Eurozone's Q1 Labor Cost Index was up 5.1% yr/yr (expected 4.9%; last 3.4%) and wages were up 5.3% yr/yr (last 3.2%).
  • Italy's May CPI was up 0.2% m/m, as expected (last 0.1%), rising 0.8% yr/yr, as expected (last 0.8%).
  • Spain's April trade deficit reached EUR4.70 bln (last deficit of EUR2.00 bln).
• Commodities:
  • WTI Crude: +0.4% to $78.74/bbl
  • Gold: -0.6% to $2334.50/ozt
  • Copper: -1.7% to $4.42/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0709
  • GBP/USD: -0.2% to 1.2662
  • USD/CNH: UNCH at 7.2708
  • USD/JPY: +0.3% to 157.85
• Data out Today:
  • 8:30 ET: Empire State Manufacturing survey (Briefing.com consensus -13.0; prior -15.6)