Bond Market Update

Treasuries Slip From 12-Week Highs

• U.S. Treasuries began the week with losses across the curve, slipping from their best levels since late March. Treasuries recorded the bulk of their losses at the start after a night that saw the release of mixed May growth figures from China and an indication from Bank of Japan Governor Ueda that the July policy meeting could bring a significant reduction to the central bank's asset purchase plans. Treasuries added to their starting losses with some help from a better-than-feared Empire State Manufacturing survey for June (actual -6.0; Briefing.com consensus -13.0; prior -15.6) but found resistance later in the morning once yields on 5s and 10s approached their opening levels from Thursday. The market inched up off lows in the early afternoon but found resistance a bit below today's starting levels with the short end finishing a bit behind other tenors. Crude oil reached its best level in nearly three weeks, climbing past its 200-day (79.78) and 50-day (80.10) moving averages after the pit close, while the U.S. Dollar Index slipped 0.2% to 105.31.
• Yield Check:
  • 2-yr: +8 bps to 4.76%
  • 3-yr: +8 bps to 4.50%
  • 5-yr: +7 bps to 4.30%
  • 10-yr: +7 bps to 4.28%
  • 30-yr: +6 bps to 4.41%

• News:
  • Philadelphia Fed President (non-voter) Harker said that there is a possibility for two cuts or no cuts at all this year. · 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).
• Today's Data:
  • The Empire State Manufacturing survey improved to -6.0 in June (Briefing.com consensus -13.0) from -15.6 in May.
• Commodities:
  • WTI crude: +1.0% to $79.69/bbl
  • Gold: -0.9% to $2328.60/ozt
  • Copper: -1.3% to $4.44/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0734
  • GBP/USD: +0.2% to 1.2704
  • USD/CNH: UNCH at 7.2691
  • USD/JPY: +0.3% to 157.72
• The Day Ahead:
  • 8:30 ET: May Retail Sales (Briefing.com consensus 0.3%; prior 0.6%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior -0.1%)
  • 9:15 ET: May Industrial Production (Briefing.com consensus 0.4%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 78.5%; prior 78.4%)
  • 10:00 ET: April Business Inventories (Briefing.com consensus 0.3%; prior -0.1%)
  • 16:00 ET: April net Long-Term TIC Flows (prior $100.5 bln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results