Bond Market Update

Data Recon

• U.S. Treasuries have rallied in response to the June CPI report, which showed a welcome combination of an unexpected deflation on a month-over-month basis and a deceleration in the year-over-year growth rate. The rally has been paced by shorter tenors while the long end is a bit behind.
• Total CPI was down 0.1% month-over-month in June (Briefing.com consensus 0.1%) after no change in May. Core CPI, which excludes food and energy, was up 0.1% month-over-month (Briefing.com consensus 0.2%) after increasing 0.2% in May. On a year-over-year basis, total CPI was up 3.0%, versus 3.3% in May, while core CPI was up 3.3%, versus 3.4% in May.
  • The key takeaway from the report is that the market heard exactly what it hoped for, as CPI deflated slightly in June, contributing to additional disinflation on a year-over-year basis. The 3.0% year-over-year growth rate matched the low from 2023, which will be seen as supportive of a case for a rate cut from the FOMC.
• Initial jobless claims for the week ending July 6 decreased by 17,000 to 222,000 (Briefing.com consensus 234,000) from last week's revised rate of 239,000 (from 238,000). Continuing jobless claims decreased by 4,000 to 1.852 million from last week's revised rate of 1.856 million (from 1.858 million).
  • The key takeaway from the report is that initial claims continued backtracking from a high that was reached in June, suggesting that the labor market is holding up well despite restrictive policy from the Fed.
• Yield Check:
  • 2-yr: -11 bps to 4.52%
  • 3-yr: -11 bps to 4.28%
  • 5-yr: -10 bps to 4.14%
  • 10-yr: -8 bps to 4.20%
  • 30-yr: -5 bps to 4.42%