Bond Market Update

Skid Snapped

• U.S. Treasuries snapped their three-day skid on Tuesday, ending with modest gains across the curve. Treasuries held gains from the cash open, which followed a quiet night on the international front. The early gains were extended during the first two hours of action with 10s and shorter tenors setting fresh highs in response to the Existing Home Sales report for June (3.89 mln; Briefing.com consensus 4.00 mln), which showed that sales activity fell to levels from the end of last year. However, the late-morning uptick to highs gave way to some intraday backtracking that gave back the bulk of the gain in the long bond while shorter tenors held onto a larger chunk of their gains. The market backed down from highs even though today's $69 bln 2-yr note sale met excellent demand ahead of tomorrow's $70 bln 5-yr note auction. Crude oil fell past its 200-day moving average (78.91) to a level last seen in early June while the U.S. Dollar Index rose 0.1% to 104.46.
• Yield Check:
  • 2-yr: -4 bps to 4.48%
  • 3-yr: -4 bps to 4.26%
  • 5-yr: -3 bps to 4.15%
  • 10-yr: -2 bps to 4.24%
  • 30-yr: -1 bp to 4.47%

• News:
  • Vice President Harris reportedly has enough delegate support to be nominated for President from her party.
  • Japanese officials are reportedly considering a minimum wage hike.
  • China is attempting to mediate the Israel-Hamas conflict.
  • India's government presented a full budget for 2024, which includes higher capital gains taxes.
  • There is some uncertainty about the likelihood of a rate hike at next week's policy meeting at the Bank of Japan.
  • European Central Bank policymaker De Guindos said that September is a more convenient time for decision making.
  • France is likely to remain without a full-time prime minister until the conclusion of the Olympic Games in mid-August.
  • Japan's May BoJ Core CPI was up 2.1% yr/yr (last 2.1%).
  • South Korea's June PPI was down 0.1% m/m (last 0.1%) but up 2.5% yr/yr (last 2.3%).
  • Singapore's June CPI was down 0.2% m/m (last 0.7%) but up 2.4% yr/yr (expected 2.7%; last 3.1%). June Core CPI was up 2.9% yr/yr (expected 3.0%; last 3.1%).
• Today's Data:
  • Existing home sales decreased 5.4% month-over-month in June to a seasonally adjusted annual rate of 3.89 million (Briefing.com consensus 4.00 million) from 4.11 million in May. Sales were down 5.4% from the same period a year ago.
    • The key takeaway from the report is that sales activity slowed to levels last seen at the end of 2023, suggesting that elevated mortgage rates and low inventory are offsetting a seasonal activity boost that would be normally seen in the summer.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.434% (4.780%).
    • Bid-to-cover: 2.81 (2.65).
    • Indirect bid: 76.6% (63.6%).
    • Direct bid: 14.4% (21.0%).
• Commodities:
  • WTI crude: -1.8% to $76.99/bbl
  • Gold: +0.5% to $2406.70/ozt
  • Copper: -0.9% to $4.16/lb
• Currencies:
  • EUR/USD: -0.4% to 1.0852
  • GBP/USD: -0.2% to 1.2903
  • USD/CNH: -0.1% to 7.2896
  • USD/JPY: -0.9% to 155.62
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 3.9%)
  • 9:45 ET: flash July S&P Global U.S. Manufacturing PMI (prior 51.6) and flash July S&P Global U.S. Services PMI (prior 55.3)
  • 10:00 ET: June New Home Sales (Briefing.com consensus 640,000; prior 619,000)
  • 10:30 ET: Weekly crude oil inventories (prior -4.87 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results