Bond Market Update

2-Yr Yield Hits Three-Month Low as Labor Market Softens

• U.S. Treasuries finished the week with solid gains across the curve that sent the 2-yr yield to its lowest level since early April. The Friday rally made for a continuation of the market's strong bounce from Monday's sharp slide with Treasuries building on their opening gains after the Employment Situation report for June showed above-consensus nonfarm payrolls (206,000; Briefing.com consensus 185,000), combined with below-consensus nonfarm private payrolls (136,000; Briefing.com consensus 160,000), and an unexpected increase in the Unemployment Rate to 4.1% from 4.0%. The report was seen as one that strengthens the case for a rate cut, helping Treasuries build on their rebound rally after Monday's selling briefly drove yields on 10s and 30s to one-month highs. Today's rally, however, sent those yields to levels from the end of last week while outperformance in shorter tenors pressured the 2-yr yield to its lowest level since the start of April. This week's outperformance in shorter tenors expanded the 2s10s spread by five basis points to -33 bps. Crude oil gave back Wednesday's gain after briefly rising past its high from Tuesday, but still gained $1.71, or 2.1%, for the week, while the U.S. Dollar Index fell past its 50-day moving average (105.12), slipping 0.2% to 104.90, widening this week's loss to 1.0%.
• Yield Check:
  • 2-yr: -12 bps to 4.60% (-12 bps for the week)
  • 3-yr: -10 bps to 4.39% (-12 bps for the week)
  • 5-yr: -10 bps to 4.22% (-11 bps for the week)
  • 10-yr: -8 bps to 4.27% (-7 bps for the week)
  • 30-yr: -6 bps to 4.47% (-3 bps for the week)

• News:
  • President Biden said yesterday that he does not plan to cede his nomination. · New York Fed President (FOMC voter) Williams said that there is a way to go to reach the 2.0% inflation target on a sustained basis.
  • China sold 30-yr special Treasury bonds and the People's Bank of China is reportedly preparing to sell hundreds of billions worth of bonds after the recent slide to record lows in yields.
  • New tariffs on imports of Chinese electric vehicles into the European Union took effect today.
  • Germany's ruling coalition has reportedly agreed on a draft budget for 2025.
  • Japan's May Household Spending was down 0.3% m/m (expected 0.5%; last -1.2%), falling 1.8% yr/yr (expected 0.2%; last 0.5%). May Leading Index rose to 111.1 from 110.9, as expected, and Coincident Indicator rose 1.3% m/m (last 1.0%).
  • South Korea's May Current Account surplus reached $8.92 bln (last deficit of $290 mln).
  • Singapore's May Retail Sales rose 2.4% m/m (last -2.6%), increasing 2.2% yr/yr (last -1.2%).
  • Eurozone's May Retail Sales ticked up 0.1% m/m (expected 0.2%; last -0.2%), rising 0.3% yr/yr (expected 0.1%; last 0.6%).
  • Germany's May Industrial Production was down 2.5% m/m (expected 0.2%; last 0.1%), falling 6.7% yr/yr (last -3.7%).
  • U.K.'s June Halifax House Price Index was down 0.2% m/m (expected 0.2%; last 0.0%) but up 1.6% yr/yr (last 1.6%).
  • France's May Industrial Production was down 2.1% m/m (expected -0.6%; last 0.6%). May trade deficit reached EUR8.0 bln (expected deficit of EUR7.2 bln; last deficit of EUR7.6 bln).
  • Swiss June SECO Consumer Climate ticked up to -37 from -38 (expected -35).
  • Italy's May Retail Sales rose 0.4% m/m (expected 0.2%; last -0.1%), increasing 0.4% yr/yr (last -1.7%).
  • Spain's May Industrial Production was up 0.4% yr/yr (expected 1.4%; last 0.2%). May Consumer Confidence hit 83.8 (last 84.5).
• Today's Data:
  • June nonfarm payrolls increased by 206,000 (Briefing.com consensus 185,000). The 3-month average for total nonfarm payrolls decreased to 177,000 from 212,000. May nonfarm payrolls revised to 218,000 from 272,000. April nonfarm payrolls revised to 108,000 from 165,000.
    • June private sector payrolls increased by 136,000 (Briefing.com consensus 160,000). May private sector payrolls revised to 193,000 from 229,000. April private sector payrolls revised to 108,000 from 158,000.
    • June unemployment rate was 4.1% (Briefing.com consensus 4.0%), versus 4.0% in May. Persons unemployed for 27 weeks or more accounted for 22.2% of the unemployed versus 20.7% in May. The U6 unemployment rate, which accounts for unemployed and underemployed workers, held steady at 7.4%.
    • June average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus 0.4% in May. Over the last 12 months, average hourly earnings have risen 3.9%, versus 4.1% for the 12 months ending in May.
    • The average workweek in June was 34.3 hours (Briefing.com consensus 34.3), versus 34.3 hours in May. Manufacturing workweek was unchanged at 40.2 hours. Factory overtime remained at 3.0 hours.
    • The labor force participation rate increased to 62.6% from 62.5% and the employment-population ratio held steady at 60.1%.
• Commodities:
  • WTI crude: -0.8% to $83.23/bbl
  • Gold: +1.2% to $2397.50/ozt
  • Copper: +2.7% to $4.65/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0838
  • GBP/USD: +0.4% to 1.2815
  • USD/CNH: UNCH at 7.2894
  • USD/JPY: -0.3% to 160.72
• The Week Ahead:
  • Monday: May Consumer Credit (Briefing.com consensus $9.5 bln; prior $6.4 bln) at 15:00 ET
  • Tuesday: $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.6%) at 7:00 ET; May Wholesale Inventories (Briefing.com consensus 0.6%; prior 0.1%) at 10:00 ET; weekly crude oil inventories (prior -12.16 mln) at 10:30 ET; and $39 bln 10-yr Treasury note reopening results at 13:00 ET
  • Thursday: 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) at 8:30 ET; weekly natural gas inventories (prior +32 bcf) at 10:30 ET; $22 bln 30-yr Treasury bond reopening results at 13:00 ET; and June Treasury Budget (prior -$347.1 bln) at 14:00 ET
  • Friday: June PPI (Briefing.com consensus 0.1%; prior -0.2%) and Core PPI (Briefing.com consensus 0.1%; prior 0.0%) at 8:30 ET; and preliminary July University of Michigan Consumer Sentiment (Briefing.com consensus 67.5; prior 68.2) at 10:00 ET