Bond Market Update

Inching Lower Ahead of May PCE

• U.S. Treasuries are on track for a modestly lower start to the final session of Q2 ahead of the 8:30 ET release of May Personal Income/Outlays. Treasury futures slipped to lows during last night's presidential debate where President Biden had a poor showing, prompting speculation that his party could replace him on the November ballot. Treasury futures recovered the bulk of their early losses during the latter part of the Asian session but inched down from their overnight highs during the past few hours. The overall movement was limited even though the market received the customary month-end batch of economic data. Japan's Tokyo CPI accelerated by ten basis points to 2.3% yr/yr in June while flash June CPI readings from France (to 2.1% from 2.3%) and Spain (to 3.4% from 3.6%) showed another deceleration in the yr/yr inflation rate. Crude oil is back at its best level of the month while the U.S. Dollar Index is up 0.1% at 105.96.
• Yield Check:
  • 2-yr: UNCH at 4.72%
  • 3-yr: UNCH at 4.50%
  • 5-yr: +1 bp to 4.31%
  • 10-yr: +1 bp to 4.30%
  • 30-yr: +2 bps to 4.45%

• News:
  • S&P affirmed China's A+ rating with a Stable outlook.
  • Japan's top currency diplomat Kanda will retire at the end of July and will be replaced with a current official from the Ministry of Finance.
  • The Bank of Japan's meeting minutes with a bond market group showed growing expectations for rising rates and insufficient JGB market depth due to reluctance of foreign investors.
  • The latest Consumer Expectations survey for the eurozone showed that year-ahead inflation expectations remained at 2.8% while the three-year outlook dipped to 2.3% from 2.4%.
  • European Commission President von der Leyen was nominated for a second five-year term, as expected.
  • The first round of French elections will take place this weekend with Marine Le Pen's party expected to receive the largest share of the vote.
  • Japan's June Tokyo CPI was up 2.3% yr/yr (last 2.2%) and Tokyo Core CPI was up 2.1% yr/yr (expected 2.0%; last 1.9%). May Unemployment Rate remained at 2.6%, as expected, and May Industrial Production was up 2.8% m/m (expected 2.0%; last -0.9%). May Housing Starts fell 5.3% yr/yr (expected -6.1%; last 13.9%) and Construction Orders rose 2.1% yr/yr (last 26.4%). 
  • South Korea's May Industrial Production was down 1.2% m/m (expected 0.2%; last 2.4%) but up 3.5% yr/yr (expected 3.1%; last 6.2%). May Retail Sales were down 0.2% m/m (last -1.2%) and May Service Sector Output was down 0.5% m/m (last 0.7%).
  • Australia's May Private Sector Credit was up 0.4% m/m, as expected (last 0.5%) and Housing Credit was also up 0.4% m/m (last 0.5%).
  • Germany's May Import Price Index was unchanged m/m (expected 0.2%; last 0.7%), falling 0.4% yr/yr (expected -0.3%; last -1.7%). June Unemployment increased by 19,000 (expected 14,000; last 25,000) and Unemployment Rate rose to 6.0% from 5.9% (expected 5.9%).
  • U.K.'s Q1 GDP expanded 0.7% qtr/qtr (expected 0.6%; last -0.3%), growing 0.3% yr/yr (expected 0.2%; last -0.2%). Q1 Current Account deficit reached GBP21.0 bln (expected deficit of GBP17.7 bln; last deficit of GBP21.2 bln).
  • France's flash June CPI was up 0.1% m/m, as expected (last 0.0%), rising 2.1% yr/yr (last 2.3%). May PPI was down 1.4% m/m (last -3.6%), falling 6.7% yr/yr (last -6.7%). May Consumer Spending was up 1.5% m/m (expected 0.2%; last -0.9%).
  • Italy's flash June CPI was up 0.1% m/m (expected 0.2%; last 0.2%), rising 0.8% yr/yr (expected 1.0%; last 0.8%). April Industrial Sales rose 0.8% m/m (last -2.8%) but were down 2.0% yr/yr (last -5.1%). May non-EU trade surplus reached EUR5.77 bln (last surplus of EUR4.91 bln).
  • Spain's flash June CPI was up 0.3% m/m (expected 0.2%; last 0.3%), rising 3.4% yr/yr, as expected (last 3.6%). June Core CPI was up 3.0% yr/yr (last 3.0%). April Current Account surplus reached EUR2.83 bln (last EUR3.29 bln).
  • Swiss June KOF Leading Indicators rose to 102.7 from 102.2 (expected 101.0).
• Commodities:
  • WTI Crude: +0.6% to $82.21/bbl
  • Gold: +0.3% to $2344.00/ozt
  • Copper: +1.3% to $4.404/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0697
  • GBP/USD: UNCH at 1.2641
  • USD/CNH: -0.1% to 7.2932
  • USD/JPY: UNCH at 160.65
• Data out Today:
  • 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)