Bond Market Update

Longer Tenors Pace Midweek Slide

• U.S. Treasuries retreated on Wednesday with longer tenors leading the weakness after three days of sideways action. Treasuries recorded roughly half of their losses at the open, falling after a night that saw a mixed showing from global equity markets amid slight shifts in rate expectations. An acceleration in Australia's May CPI (to 4.0% yr/yr from 3.6%) led to renewed speculation about a potential August rate hike from the Reserve Bank of Australia while comments from European Central Bank policymaker Rehn boosted hopes for an ECB rate cut in July. Treasuries spent the first hour of action near their starting levels, but widened their losses as the morning went on. Treasuries remained on lows despite the late-morning release of a below-consensus New Home Sales report for May (actual 619,000; Briefing.com consensus 650,000), finishing on their lows after reversing a slight uptick that followed the completion of today's solid $70 bln 5-yr note sale. Crude oil was little changed while the U.S. Dollar Index climbed 0.4% to 106.05 with its May high looming above (106.52).
• Yield Check:
  • 2-yr: +2 bps to 4.75%
  • 3-yr: +7 bps to 4.53%
  • 5-yr: +7 bps to 4.34%
  • 10-yr: +8 bps to 4.32%
  • 30-yr: +8 bps to 4.45%

• News:
  • Outgoing Dutch Prime Minister Rutte will be the next secretary general of NATO, as expected.
  • European Central Bank policymaker Rehn said that rate changes are a possibility at every upcoming ECB meeting, which has raised hopes for another rate cut in July.
  • The ECB has reportedly started the review of its monetary policy strategy, which will be publicized in the second half of 2025.
  • The Bank of Japan will reportedly consider hiking rates at all upcoming meetings, including the one scheduled for July. The central bank is expected to announce a reduction to its monthly purchases.
  • China's 10-yr yield has slipped back toward its low from late April in the 2.20% area.
  • South Korea's finance minister expects that exports will return to record levels imminently.
  • Australia's May MI Leading Index was unchanged m/m (last 0.0%) and May CPI Indicator accelerated to 4.0% yr/yr from 3.6% (expected 3.8%).
  • Singapore's May Industrial Production was up 1.1% m/m (expected 1.8%; last 7.5%), rising 2.9% yr/yr (expected 2.0%; last -1.2%).
  • Germany's July GfK Consumer Climate fell to -21.8 from -21.0 (expected -19.4).
  • U.K.'s June CBI Distributive Trades Survey fell to -24 from 8 (expected 1).
  • France's June Consumer Confidence fell to 89 from 90, as expected. May jobseeker total increased to 2.816 mln from 2.775 mln.
  • Swiss June ZEW Expectations fell to 17.5 from 18.2.
• Today's Data:
  • New home sales declined 11.3% month-over-month in May to a seasonally adjusted annual rate of 619,000 units (Briefing.com consensus 650,000) from an upwardly revised 698,000 (from 634,000) in April. On a year-over-year basis, new home sales were down 16.5%.
    • The key takeaway from the report is that new home sales activity languished in May, but after accounting for the upward revision to April sales, the combined two-month period was actually better than what was embedded in the consensus estimate for May (650,000) and the original report for April (634,000). Even so, it is clear that higher mortgage rates and elevated prices continue to pressure new home sales (-16.5% yr/yr).
  • The weekly MBA Mortgage Index was up 0.8% after increasing 0.9% a week ago. The Purchase Index rose 1.2% while the Refinance Index was down 0.1%.
  • Weekly crude oil inventories increased by 3.59 mln barrels after decreasing by 2.55 mln barrels a week ago.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.331% (4.349%).
    • Bid-to-cover: 2.35 (2.44).
    • Indirect bid: 68.9% (66.2%).
    • Direct bid: 17.7% (18.3%).
• Commodities:
  • WTI crude: +0.1% to $80.91/bbl
  • Gold: -0.8% to $2313.10/ozt
  • Copper: +0.2% to $4.38/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0677
  • GBP/USD: -0.5% to 1.2619
  • USD/CNH: +0.2% to 7.3010
  • USD/JPY: +0.7% to 160.74
• The Day Ahead:
  • 8:30 ET: 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%)
  • 10:00 ET: May Pending Home Sales (Briefing.com consensus 2.3%; prior -7.7%)
  • 10:30 ET: Weekly natural gas inventories (prior +71 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results