Bond Market Update

Opening Gains Reversed as PMIs Accelerate

• U.S. Treasuries ended the holiday-shortened week with slight losses after a modestly higher start gave way to a morning reversal. The trading day started with solid gains across the curve after the night brought a reminder of lackluster manufacturing activity in major economies. Japan's flash Manufacturing PMI (50.1) reading showed a deceleration in the pace of growth to a near standstill while Australia's reading (47.5) fell deeper into contraction. Japan's Services PMI (49.8) fell into contraction while India's Manufacturing (58.5) and Services (60.4) readings remained comfortably in expansionary territory. In Europe, flash Manufacturing and Services PMI readings from France (Manufacturing: 45.3; Services: 48.8) and Germany (Manufacturing: 43.4; Services: 53.5) disappointed while the U.K.'s Manufacturing PMI (51.4) showed slightly higher than expected growth. PMIs remained the theme during the U.S. session, as Treasuries slid from their morning highs after the S&P Global U.S. Manufacturing PMI hit 51.7 in the flash reading for June, up from 51.3 in May while Services PMI accelerated to 55.1 from 54.8 in May. The news of accelerating pace of activity in both sectors sent Treasuries into the red, but the market bounced above yesterday's lows, ending with slight losses after a slow intraday recovery. This week's action had little impact on the slope of the yield curve, leaving the 2s10s spread at -47 bps. Crude oil narrowed this week's gain to $2.63/bbl while the U.S. Dollar Index rose 0.2% to 105.80, gaining 0.3% for the week.
• Yield Check:
  • 2-yr: UNCH at 4.73% (+5 bps for the week)
  • 3-yr: UNCH at 4.46% (+4 bps for the week)
  • 5-yr: +1 bp to 4.27% (+4 bps for the week)
  • 10-yr: UNCH at 4.26% (+5 bps for the week)
  • 30-yr: +1 bp to 4.40% (+5 bps for the week)

• News:
  • The U.S. Treasury's latest semi-annual currency report did not label any major trading partners as currency manipulators.
  • Richmond Fed President (FOMC voter) Barkin said that more clarity on inflation is needed before a rate cut.
  • French Finance Minister Le Maire said that the promise to reduce public spending should not be underestimated.
  • China's Housing Ministry urged local governments to speed up purchases of unsold homes.
  • The Japanese government will consider raising the minimum wage next week.
  • Bank Indonesia left its policy rate at 6.25%, as expected.
  • Japan's May National CPI was up 0.5% m/m (last 0.4%), rising 2.8% yr/yr (last 2.5%). May National Core CPI was up 2.5% yr/yr (expected 2.6%; last 2.2%). Flash June Manufacturing PMI hit 50.1 (expected 50.6; last 50.4) and flash Services PMI hit 49.8 (last 53.8).
  • South Korea's May PPI was up 0.1% m/m (last 0.3%), rising 2.3% yr/yr (last 1.9%).
  • India's flash June Manufacturing PMI hit 58.5 (last 57.5) and flash Services PMI hit 60.4 (expected 60.0; last 60.2).
  • Hong Kong's May CPI was down 0.2% m/m (last -0.7%) but up 1.2% yr/yr (expected 1.3%; last 1.1%).
  • Australia's flash June Manufacturing PMI hit 47.5 (last 49.7) and flash Services PMI hit 50.6 (last 52.5).
  • Eurozone's flash June Manufacturing PMI hit 45.6 (expected 48.0; last 47.3) and flash Services PMI hit 52.6 (expected 53.5; last 53.2).
  • U.K.'s May Retail Sales grew 2.9% m/m (expected 1.6%; last -1.8%), increasing 1.3% yr/yr (expected -0.9%; last -2.3%). May Core Retail Sales rose 2.9% m/m (expected 1.3%; last -1.4%), increasing 1.2% yr/yr (expected -0.8%; last -2.5%). May Public Sector Net Borrowing reached GBP14.10 bln (expected GBP14.50 bln; last GBP17.52 bln). Flash June Manufacturing PMI hit 51.4 (expected 51.3; last 51.2) and flash Services PMI hit 51.2 (expected 53.0; last 52.9).
  • Germany's flash June Manufacturing PMI hit 43.4 (expected 46.4; last 45.4) and flash Services PMI hit 53.5 (expected 54.4; last 54.2).
  • France's June Business Survey remained at 99 (expected 100). Flash June Manufacturing PMI hit 45.3 (expected 46.8; last 46.4) and flash Services PMI hit 48.8 (expected 50.0; last 49.3).
• Today's Data:
  • Existing home sales decreased 0.7% month-over-month in May to a seasonally adjusted annual rate of 4.11 million (Briefing.com consensus 4.10 million) from 4.14 million in April. Sales were down 2.8% from the same period a year ago.
    • The key takeaway from the report is that there was a pickup in inventory of homes for sale; however, inventory overall remains constrained, which is leading to ongoing price gains that continue to pose affordability pressures, along with elevated mortgage rates, for prospective buyers.
  • Conference Board's Leading Economic Index was down 0.5% in May (Briefing.com consensus -0.3%) after falling 0.6% in April.
  • The S&P Global U.S. Manufacturing PMI hit 51.7 in the flash reading for June, up from 51.3 in May.
  • The S&P Global U.S. Services PMI hit 55.1 in the flash reading for June, up from 54.8 in May.
  • Weekly natural gas inventories increased by 71 bcf after increasing by 75 bcf a week ago.
• Commodities:
  • WTI crude: -0.8% to $80.70/bbl
  • Gold: -1.6% to $2331.60/ozt
  • Copper: -2.6% to $4.44/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0695
  • GBP/USD: -0.1% to 1.2648
  • USD/CNH: UNCH at 7.2895
  • USD/JPY: +0.4% to 159.53
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: April FHFA Housing Price Index (prior 0.1%) and April S&P Case-Shiller Home Price Index (Briefing.com consensus 6.9%; prior 7.4%) at 9:00 ET; June Consumer Confidence (Briefing.com consensus 100.0; prior 102.0) at 10:00 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 0.9%) at 7:00 ET; May New Home Sales (Briefing.com consensus 650,000; prior 634,000) at 10:00 ET; weekly crude oil inventories (prior -2.55 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: May advance goods trade balance (prior -$99.4 bln), advance Retail Inventories (prior 0.7%), advance Wholesale Inventories (prior 0.2%), weekly Initial Claims (Briefing.com consensus 238,000; prior 238,000), Continuing Claims (prior 1.828 mln), May Durable Orders (Briefing.com consensus -1.2%; prior 0.7%), Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.4%), Q1 GDP -- third estimate (Briefing.com consensus 1.3%; prior 1.3%), and Q1 GDP Deflator -- third estimate (Briefing.com consensus 3.1%; prior 3.0%) at 8:30 ET; May Pending Home Sales (Briefing.com consensus 2.3%; prior -7.7%) at 10:00 ET; weekly natural gas inventories (prior +71 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET 
  • Friday: May Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.3%; prior 0.2%), PCE Prices (prior 0.3%), and Core PCE Prices (Briefing.com consensus 0.1%; prior 0.2%) at 8:30 ET; June Chicago PMI (prior 35.4) at 9:45 ET; and final June University of Michigan Consumer Sentiment (Briefing.com consensus 65.6; prior 65.6) at 10:00 ET