Bond Market Update

Monday Lows Revisited

• U.S. Treasuries retreated on Thursday, though intraday action saw a slow rise off morning lows. The Treasury market returned from a midweek holiday with a lower start that was followed by an extension of the losses even though today's batch of economic data disappointed. May Housing Starts (actual 1.277 mln; Briefing.com consensus 1.385 mln) undershot estimates, weekly initial claims (actual 238,000; Briefing.com consensus 237,000) showed a smaller-than-expected decrease, and the Philadelphia Fed survey (actual 1.3; Briefing.com consensus 6.5) reflected weaker-than-expected manufacturing sector growth in the Philadelphia Federal Reserve District. The post-data selling abated once yields returned to their highs from Monday around 9:30 ET, followed by a slow and steady rise off lows that eventually returned Treasuries to levels seen shortly after the open. Crude oil continued its three-week run off a four-month low, climbing past $81.00/bbl to its best level since the end of April, while the U.S. Dollar Index rose 0.3% to 105.57.
• Yield Check:
  • 2-yr: +3 bps to 4.73%
  • 3-yr: +3 bps to 4.46%
  • 5-yr: +3 bps to 4.27%
  • 10-yr: +4 bps to 4.25%
  • 30-yr: +4 bps to 4.39%

• News:
  • The U.S. Treasury bought back $1.86 bln worth of notes with maturities between five and seven years in its weekly repurchase operation.
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was revised down to 3.0% from 3.1% in the previous estimate.
  • Outgoing Dutch Prime Minister Rutte will be the next Secretary General of NATO.
  • The Swiss National Bank unexpectedly lowered its policy rate by 25 bps to 1.25%.
  • The Bank of England kept its bank rate at 5.25%, which was expected.
  • Norges Bank kept its policy rate at 4.50% but raised its rate outlook.
  • Germany's ifo Institute raised its domestic growth forecast for 2024 to 0.4% from 0.2%.
  • Pre-election polls from the U.K. suggest that the Conservative party is on track for its largest loss in history.
  • The People's Bank of China made no changes to its one-year and five-year loan prime rates, as expected.
  • China Securities Regulatory Commission plans to accelerate the overseas listing process for Chinese companies.
  • Japan's Lower House struck down a no-confidence vote against Prime Minister Kishida.
  • Singapore's Q1 Unemployment Rate rose to 2.1% from 2.0%, as expected.
  • Hong Kong's May Unemployment Rate remained at 3.0%.
  • New Zealand's Q1 GDP expanded 0.2% qtr/qtr (expected 0.1%; last -0.1%), growing 0.3% yr/yr (expected 0.2%; last -0.2%). Q1 GDP Expenditure was up 0.1% qtr/qtr (last 0.1%).
  • Germany's May PPI was unchanged m/m (expected 0.1%; last 0.2%), falling 2.2% yr/yr (expected -2.0%; last -3.3%).
  • Swiss May trade surplus reached CHF5.811 bln (expected surplus of CHF3.840 bln; last surplus of CHF4.339 bln).
• Today's Data:
  • Housing starts declined 5.5% month-over-month in May to a seasonally adjusted annual rate of 1.277 million (Briefing.com consensus 1.385 million) with single-unit starts down 5.2%. That is the lowest rate since June 2020. Building permits -- a leading indicator -- declined 3.8% month-over-month to 1.386 million (Briefing.com consensus 1.455 million) with single-unit permits down 2.9%. That is the lowest rate since June 2020.
    • The key takeaway from the report is that it suggests the housing market will remain subject to inventory constraints that will create affordability pressures, barring a stronger pickup in listings of existing homes for sale that has been tough to come by with mortgage rates remaining high.
  • Initial jobless claims for the week ending June 15 decreased by 5,000 to 238,000 (Briefing.com consensus 237,000. Continuing jobless claims for the week ending June 8 increased by 15,000 to 1.828 million.
    • The key takeaway from the report is that jobless claims have moved up a notch from lower levels to connote some softening in the labor market.
  • The June Philadelphia Fed Index decreased to 1.3 (Briefing.com consensus 6.5) from 4.5 in May. A reading above 0.0 is indicative of expansion, but the lower reading versus May reflects a deceleration in the pace of expansion.
    • The key takeaway from the report is that the indexes for new orders, shipments, and employment all remained negative while the prices paid component increased from 18.7 to 22.5.
  • The Q1 Current Account deficit widened to $237.6 billion (Briefing.com consensus -$203.0 billion) from a downwardly revised deficit of $221.8 billion (from -$194.8 billion) in Q4.
    • The key takeaway from the report is that the widening in the deficit mostly reflected an expanded deficit on goods.
  • Weekly crude oil inventories decreased by 2.55 mln barrels after increasing by 3.73 mln barrels a week ago.
  • The U.S. Treasury sold $21 bln in 5-yr TIPS at a high yield of 2.050%, which stopped through the when-issued yield by 2.4 bps. The bid-to-cover ratio was 2.52x and indirect takedown reached 79.1%.
• Commodities:
  • WTI crude: +0.8% to $81.35/bbl 
  • Gold: +0.9% to $2369.00/ozt
  • Copper: +1.6% to $4.56/lb
• Currencies:
  • EUR/USD: -0.4% to 1.0707
  • GBP/USD: -0.4% to 1.2666
  • USD/CNH: +0.2% to 7.2908
  • USD/JPY: +0.6% to 158.86
• The Day Ahead:
  • 9:45 ET: Flash June S&P Global U.S. Manufacturing PMI (prior 51.3) and flash June S&P Global U.S. Services PMI (prior 54.8)
  • 10:00 ET: May Existing Home Sales (Briefing.com consensus 4.10 mln; prior 4.14 mln) and May Leading Indicators (Briefing.com consensus -0.3%; prior -0.6%)
  • 10:30 ET: Weekly natural gas inventories (prior +75 bcf)