Bond Market Update

Edging Higher Ahead of CPI

• U.S. Treasuries finished a quiet Wednesday session on a mixed note with the 2-yr note recording a slim loss while longer tenors advanced ahead of tomorrow's release of June CPI (Briefing.com consensus 0.1%; prior 0.0%). The market continued this week's trend of mostly sideways intraday action, but that is expected to change once participants receive the latest look at inflation figures on Thursday morning. Longer tenors began the day near their highs from Monday while the 5-yr note hit a fresh high for the week at the open. The first three hours of action saw some backtracking that found support once most tenors returned to yesterday's closing levels. The long end outperformed in early trade and remained ahead in the afternoon, thanks to a strong $39 bln 10-yr note reopening. Fed Chairman Powell completed his two-day testimony on monetary policy, but today's appearance before the House Financial Services Committee did not produce any surprises. Crude oil recovered from a weak start, recording its first gain since last Wednesday, while the U.S. Dollar Index slipped 0.1% to 105.06, dipping back below its 50-day moving average (105.07).
• Yield Check:
  • 2-yr: UNCH at 4.63%
  • 3-yr: -2 bps to 4.39%
  • 5-yr: -1 bp to 4.24%
  • 10-yr: -2 bps to 4.28%
  • 30-yr: -3 bps to 4.47%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was revised up to 2.0% from 1.5% in the previous estimate.
  • Former Bank of Japan Governor Shirakawa said that the central bank needs to loosen the hard 2.0% inflation target.
  • The Reserve Bank of New Zealand left its official cash rate at 5.50%, as expected.
  • Samsung's unionized employees are threatening an indefinite strike.
  • Croatia's central bank governor and European Central Bank policymaker Vujcic is on track to be appointed to his third six-year term.
  • China's June CPI was down 0.2% m/m (expected -0.1%; last -0.1%) but up 0.2% yr/yr (expected 0.4%; last 0.3%). June PPI was down 0.8% yr/yr, as expected (last -1.4%).
  • Japan's June PPI was up 0.2% m/m (expected 0.4%; last 0.7%), rising 2.9% yr/yr, as expected (last 2.6%).
  • South Korea's June Unemployment Rate remained at 2.8%.
  • Italy's May Industrial Production was up 0.5% m/m (expected 0.0%; last -1.0%) but down 3.3% yr/yr (last -3.0%).
• Today's Data:
  • Wholesale Inventories increased 0.6% in May (Briefing.com consensus 0.6%) after increasing a revised 0.2% (from 0.1%) in April.
  • The weekly MBA Mortgage Index was down 0.2% after decreasing 2.6% a week ago. The Refinance Index fell 2.2% while the Purchase Index was up 1.0%.
  • Weekly crude oil inventories decreased by 3.44 mln barrels after decreasing by 12.16 mln barrels a week ago.
  • $39 bln 10-year Treasury note reopening results (prior 12-auction average):
    • High yield: 4.276% (4.278%).
    • Bid-to-cover: 2.58 (2.52).
    • Indirect bid: 67.6% (66.9%).
    • Direct bid: 20.9% (17.8%).
• Commodities:
  • WTI crude: +0.8% to $82.09/bbl
  • Gold: +0.5% to $2379.50/ozt
  • Copper: +0.2% to $4.59/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0824
  • GBP/USD: +0.4% to 1.2843
  • USD/CNH: +0.1% to 7.2918
  • USD/JPY: +0.3% to 161.77
• The Day Ahead:
  • 8:30 ET: June CPI (Briefing.com consensus 0.1%; prior 0.0%), Core CPI (Briefing.com consensus 0.2%; prior 0.2%), weekly Initial Claims (Briefing.com consensus 234,000; prior 238,000), and Continuing Claims (prior 1.858 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +32 bcf)
  • 14:00 ET: June Treasury Budget (prior -$347.1 bln)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results