Bond Market Update

Treasuries Remain Resilient as Quarter-End Looms

• U.S. Treasuries ended Thursday with gains across the curve after overcoming a lower start, making for another display of their recent trend of intraday resilience. The market was on track for an extension of yesterday's losses after a night that was quiet on the international data front with the 5-yr yield rising to its 200-day moving average (4.358%) at the open. However, the entire complex bounced over the next 90 minutes, with the move commencing after the release of a big batch of domestic data, which was headlined by an upward revision to Q1 GDP (to 1.4% from 1.3%), an unexpected decrease in weekly jobless claims (233,000; Briefing.com consensus 238,000; prior 239,000), and better-than-expected durable orders growth (actual 0.1%; Briefing.com consensus -1.2%) for May. The morning bounce returned yields on 10s and 30s to their opening levels from Wednesday while the rest of the session saw a sideways drift near session highs. The U.S. Treasury completed this week's slate of strong note offerings with a stellar $44 bln 7-yr note sale, which helped ensure a finish just below the day's best levels. Crude oil climbed toward its best level of the month while the U.S. Dollar Index slipped 0.1% to 105.91. Tomorrow's session, which marks the end of Q2, will feature the release of Personal Income/Outlays data for May and the Fed's preferred inflation gauge.
• Yield Check:
  • 2-yr: -3 bps to 4.72%
  • 3-yr: -3 bps to 4.50%
  • 5-yr: -4 bps to 4.30%
  • 10-yr: -3 bps to 4.29%
  • 30-yr: -2 bps to 4.43%

• News:
  • Atlanta Fed President (FOMC voter) Bostic repeated that he expects just one rate cut near the end of the year.
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was revised down to 2.7% from 3.0% in the previous estimate.
  • Sweden's Riksbank left its policy rate at 3.75% and hinted at as many as three rate cuts during the second half.
  • The EU made a slight reduction to tariffs on imports of Chinese electric vehicles.
  • China's cabinet is looking to attract more foreign investment.
  • Down payments for first-time homebuyers in Beijing have been lowered to 20% from 30%.
  • Toyota's global output was down 4.1% in May, representing the fourth consecutive monthly decrease.
  • The U.S., Japan, and South Korea have agreed to closer cooperation on key technologies, export controls, and supply chains.
  • China's May Industrial Profit was up 3.4% YTD (last 4.3%).
  • Japan's May Retail Sales were up 3.0% yr/yr (expected 2.0%; last 2.0%).
  • South Korea's July Manufacturing BSI Index rose to 78 from 74.
  • Australia's MI Inflation Expectations accelerated to 4.4% from 4.1%.
  • Eurozone's May M3 Money Supply was up 1.6% yr/yr (expected 1.5%; last 1.3%). May loans to nonfinancials rose 0.3% yr/yr (last 0.3%) and Private Sector Loans also rose 0.3% yr/yr, as expected (last 0.2%). June Business and Consumer Survey fell to 95.9 from 96.1 (expected 96.2).
  • Italy's June Business Confidence fell to 86.8 from 88.2 (expected 88.7) and Consumer Confidence rose to 98.3 from 96.4 (expected 97.0). May PPI was up 0.3% m/m (last -0.7%) but down 3.5% yr/yr (last -1.4%).
  • Spain's May Retail Sales rose 0.2% yr/yr (last 0.3%).
• Today's Data:
  • Initial jobless claims for the week ending June 22 decreased by 6,000 to 233,000 (Briefing.com consensus 238,000). Continuing jobless claims for the week ending June 15 increased by 18,000 to 1.839 million -- the highest level since November 27, 2021.
    • The key takeaway from the report is the elevated level of continuing jobless claims, which suggests laid-off workers are facing longer wait times before finding a new job, which would be a symptom of a softening labor market.
  • With the third estimate, Q1 GDP was revised up to 1.4% (Briefing.com consensus 1.3%) from 1.3%, although personal spending growth was revised down to 1.5% from 2.0%. The GDP Price Deflator was revised up to 3.1% (Briefing.com consensus 3.1) from 3.0%.
    • The key takeaway from the report is that it is dated (we're just days away from the end of Q2) so its impact should be limited; however, the slowdown in personal spending is noteworthy in light of more anecdotal evidence in the interim that suggests consumers, in aggregate, are reining in their discretionary spending.
  • Durable goods orders for May increased 0.1% month-over-month (Briefing.com consensus -1.2%) following a downwardly revised 0.2% increase (from 0.7%) in April. Excluding transportation, durable goods orders were down 0.1% month-over-month (Briefing.com consensus 0.2%) following an unrevised 0.4% increase in April.
    • The key takeaway from the report is that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- declined 0.6% month-over-month.
  • Pending Home Sales were down 2.1% in May (Briefing.com consensus 2.3%) after decreasing 7.7% in April.
  • The Advance International Trade in Goods deficit widened to $100.6 billion in May from $98.0 billion in April. Advance Retail Inventories increased 0.7% while Advance Wholesale Inventories increased 0.6%.
  • Weekly natural gas inventories increased by 52 bcf after increasing by 71 bcf a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.276% (4.330%).
    • Bid-to-cover: 2.58 (2.55).
    • Indirect bid: 69.7% (68.7%).
    • Direct bid: 18.5% (17.3%).
• Commodities:
  • WTI crude: +1.0% to $81.73/bbl
  • Gold: +1.0% to $2336.50/ozt
  • Copper: -0.7% to $4.35/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0705
  • GBP/USD: +0.2% to 1.2644
  • USD/CNH: +0.1% to 7.3020
  • USD/JPY: UNCH at 160.77
• The Day Ahead:
  • 8:30 ET: 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%)
  • 9:45 ET: June Chicago PMI (prior 35.4)
  • 10:00 ET: Final June University of Michigan Consumer Sentiment (Briefing.com consensus 65.6; prior 65.6)