Bond Market Update

Weak Retail Sales Fuel Intraday Bounce

• U.S. Treasuries finished Tuesday on a firmly higher note after recovering their slim opening losses. Treasuries started the pre-holiday session with losses that lifted yields on 5s and 10s back to their highs from yesterday, but the entire complex bounced swiftly after the market received a disappointing Retail Sales report for May (actual 0.1%; Briefing.com consensus), which was coupled with a downward revision to April's reading (to -0.2% from 0.0%), inviting renewed questions about the strength of the consumer. The post-data bounce lifted Treasuries above Monday's opening levels with the market continuing to fresh highs in late-morning trade. Treasuries received another boost from an impressive $13 bln 20-yr bond reopening, which kept action at the day's best levels into the close. Today's bounce pressured yields back to their closing levels from last week ahead of tomorrow's midweek closure for Juneteenth. Crude oil extended its bounce off its June low, reaching its best level since the end of April while the U.S. Dollar Index slipped 0.1% to 105.26.
• Yield Check:
  • 2-yr: -6 bps to 4.70%
  • 3-yr: -7 bps to 4.43%
  • 5-yr: -7 bps to 4.23%
  • 10-yr: -6 bps to 4.22%
  • 30-yr: -6 bps to 4.35%

• News:
  • The Congressional Budget Office estimates that the deficit for FY24 will reach $1.9 trln and is expected to grow to $2.8 trln by 2034.
  • Fed Chairman Powell will appear at the semiannual monetary policy testimony on July 9 and 10.
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was left unrevised at 3.1% in the latest estimate.
  • Fed Governor (FOMC voter) Kugler said that it will likely be appropriate to cut rate later this year.
  • Richmond Fed President (FOMC voter) Barkin said that more progress on reducing inflation is needed before cutting rates.
  • EU leaders failed to agree on appointments for top posts at the European Commission, European Council, and the foreign ministry, but they will continue debating next week.
  • China's Premier Li expressed hope for improved relations with Australia. 
  • There was speculation that the People's Bank of China will not make any changes to its loan prime rate this month.
  • China's National Development and Reform Commission noted that demand for electric vehicles has continued growing at a fast pace.
  • Hong Kong's exchange will stop imposing trading halts due to extreme weather.
  • The Reserve Bank of Australia left its cash rate at 4.35%, as expected.
  • Singapore's May trade surplus reached $4.563 bln (last surplus of $4.516 bln) as non-oil exports dipped 0.1% m/m (expected 1.7%; last 7.3%) and 0.1% yr/yr (expected -0.9%; last -9.6%).
  • Eurozone's May CPI was up 0.2% m/m, as expected (last 0.6%), rising 2.6% yr/yr, as expected (last 2.4%). May Core CPI was up 0.4% m/m, as expected (last 0.7%), rising 2.9% yr/yr, as expected (last 2.7%). June ZEW Economic Sentiment hit 51.3 (expected 47.8; last 47.0).
  • Germany's June ZEW Economic Sentiment hit 47.5 (expected 49.6; last 47.1) and Current Conditions fell to -73.8 from -72.3 (expected -65.0).
• Today's Data:
  • Total industrial production increased 0.9% month-over-month in May (Briefing.com consensus 0.4%) after being flat in April. The capacity utilization rate jumped to 78.7% (Briefing.com consensus 78.5%) from a downwardly revised 78.2% (from 78.4%) in April. Total industrial production was up 0.4% yr/yr while the capacity utilization rate was 0.9 percentage point below its long-run average.
    • The key takeaway from the report was that gains were widespread across the major market groups, with particular strength in manufacturing output that should mitigate hard-landing concerns.
  • Total retail sales increased 0.1% month-over-month in May (Briefing.com consensus 0.3%) following a downwardly revised 0.2% decline (from 0.0%) in April. Excluding autos, retail sales declined 0.1% month-over-month in May (Briefing.com consensus 0.2%) following a downwardly revised 0.1% decline (from 0.2%) in April.
    • The key takeaway from the report is that it reflects some slowing in consumer spending on goods that will be accounted for in weaker Q2 real GDP forecasts.
  • Business Inventories increased by 0.3% in April (Briefing.com consensus 0.3%) after decreasing by 0.1% in March.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.452% (4.532%).
    • Bid-to-cover: 2.74 (2.63).
    • Indirect bid: 77.9% (69.2%).
    • Direct bid: 16.3% (19.2%).
• Commodities:
  • WTI crude: +1.3% to $80.73/bbl
  • Gold: +0.8% to $2346.80/ozt
  • Copper: +1.1% to $4.49/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0738
  • GBP/USD: +0.1% to 1.2707
  • USD/CNH: UNCH at 7.2714
  • USD/JPY: UNCH at 157.76
• The Day Ahead:
  • Bond and equity markets closed for Juneteenth
  • 7:00 ET: Weekly MBA Mortgage Index (prior 15.6%)
  • 10:00 ET: June NAHB Housing Market Index (Briefing.com consensus 45; prior 45)
  • Thursday 8:30 ET: May Housing Starts (Briefing.com consensus 1.358 mln; prior 1.360 mln), Building Permits (Briefing.com consensus 1.455 mln; prior 1.440 mln), weekly Initial Claims (Briefing.com consensus 237,000; prior 242,000), Continuing Claims (prior 1.820 mln), Q1 Current Account Balance (Briefing.com consensus -$203.0 bln; prior -$194.8 bln), and June Philadelphia Fed survey (Briefing.com consensus 6.5; prior 4.5)
  • Thursday 11:00 ET: Weekly crude oil inventories (prior +3.73 mln)