Bond Market Update

Short End Lags

• U.S. Treasuries are on track for a modestly lower start with the short end expected to show early weakness after underperforming during Tuesday's intraday bounce. Treasury futures slumped in early evening trade, adding to their losses as the night went on. The market returned to early evening levels at the start of the European session before sliding to fresh lows. The Asian session saw reduced volume due to a holiday in India and there was some pressure on sentiment surrounding chip names after it was reported that the Biden administration is planning additional restrictions on chip sales to China. In addition, chip equipment manufacturer ASML reported solid results for Q2, but soft guidance for Q3 has weighed on the industry group. Separately, eurozone's final CPI report for June did not contain any surprises while inflation readings from the U.K. showed unexpected deflation in producer prices. However, headline CPI remained elevated, reducing expectations for a rate cut in August. The U.S. session will feature the release of reports on Housing Starts (Briefing.com consensus 1.310 mln; prior 1.277 mln), Building Permits (Briefing.com consensus 1.391 mln; prior 1.386 mln), and Industrial Production (Briefing.com consensus 0.3%; prior 0.9%) for June. Later in the day, the U.S. Treasury will reopen $13 bln in 20-yr bonds. Crude oil is bouncing from a soft start to the week while the U.S. Dollar Index is down 0.4% at 103.82, falling to its lowest level since late March.
• Yield Check:
  • 2-yr: +3 bps to 4.47%
  • 3-yr: +3 bps to 4.24%
  • 5-yr: +2 bps to 4.11%
  • 10-yr: +1 bp to 4.18%
  • 30-yr: +1 bp to 4.38%

• News:
  • The International Monetary Fund raised its 2025 global growth forecast to 3.3% from 3.2%.
  • Cooler-than-expected Q2 inflation in New Zealand has pulled rate cut expectations to October/November.
  • BHP Billiton (BHP) extracted a record amount of iron ore in Q4.
  • Adidas raised its outlook.
  • Japan's July Reuters Tankan Index hit 11 (last 6).
  • Singapore's June trade surplus reached $3.078 bln (last surplus of $4.282 bln) as non-oil exports fell 0.4% m/m (expected 4.1%; last -0.7%), decreasing 8.7% yr/yr (expected -1.2%; last -0.7%).
  • Australia's June MI Leading Index was unchanged m/m (last 0.0%).
  • New Zealand's Q2 CPI was up 0.4% qtr/qtr (expected 0.5%; last 0.6%), growing 3.3% yr/yr (expected 3.5%; last 4.0%). 
  • Eurozone's June CPI was up 0.2% m/m, as expected (last 0.2%), rising 2.5% yr/yr, as expected (last 2.6%). June core CPI was up 0.4% m/m (expected 0.3%; last 0.4%), rising 2.9% yr/yr, as expected (last 2.9%).
  • U.K.'s June CPI was up 0.1% m/m, as expected (last 0.3%), rising 2.0% yr/yr (expected 1.9%; last 2.0%). June Core CPI was up 0.2% m/m (expected 0.1%; last 0.5%), rising 3.5% yr/yr (expected 3.4%; last 3.5%). Input PPI was down 0.8% m/m (expected 0.1%; last -0.6%) and Output PPI was down 0.3% m/m (expected 0.1%; last -0.1%). June House Prices were up 2.2% yr/yr (expected 1.5%; last 1.3%).
• Commodities:
  • WTI Crude: +0.5% to $81.19/bbl
  • Gold: +0.3% to $2475.90/ozt
  • Copper: -0.1% to $4.445/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0933
  • GBP/USD: +0.5% to 1.3031
  • USD/CNH: -0.2% to 7.2698
  • USD/JPY: -1.1% to 156.51
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 3.9%; prior -0.2%)
  • 8:30 ET: June Housing Starts (Briefing.com consensus 1.310 mln; prior 1.277 mln) and Building Permits (Briefing.com consensus 1.391 mln; prior 1.386 mln)
  • 9:15 ET: June Industrial Production (Briefing.com consensus 0.3%; prior 0.9%) and Capacity Utilization (Briefing.com consensus 78.6%; prior 78.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -3.44 mln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results