Bond Market Update

Steady Ahead of Powell Testimony

• U.S. Treasuries began the week that will feature the release of June CPI (Briefing.com consensus 0.1%; prior 0.0%) on a quiet note, spending the session in a slow recovery from slight initial pressure. The trading day started with modest losses across the curve after a night that saw a mixed showing from global equity markets and featured the results of France's second round of elections. However, the results are expected to lead to a deadlocked parliament, so the market's response was muted. Treasuries recovered from their lower start during the first hour of action before seeing some renewed pressure around the start of the Wall Street session. However, that selling also gave way to a bounce that eventually lifted longer tenors into positive territory while the 2-yr note remained closer to its low. The market did not receive any top-tier data, which will also be the case tomorrow, but Fed Chairman Powell will begin his two-day semiannual testimony on monetary policy with an appearance before the Senate Banking Committee at 10:00 ET and the U.S. Treasury will sell $58 bln in 3-yr notes at 13:00 ET. Crude oil slipped into the lower half of its range from last week while the U.S. Dollar Index rose 0.1% to 104.97.
• Yield Check:
  • 2-yr: +2 bps to 4.62%
  • 3-yr: +1 bp to 4.40%
  • 5-yr: +1 bp to 4.23%
  • 10-yr: UNCH at 4.27%
  • 30-yr: -1 bp to 4.46%

• News:
  • The New York Fed's latest Survey of Consumer Expectations showed that median year-ahead inflation expectations decreased to 3.0% from 3.2% while the five-year outlook decreased to 2.8% from 3.0%.
  • President Biden again ruled out ceding the Democratic presidential nomination over the weekend.
  • French elections concluded with a surprising win for left wing parties after hundreds of candidates dropped out to strengthen support against Marine Le Pen's National Rally, which came in third place. 
  • Germany's Chemical Industry Association affirmed its outlook for the year.
  • New British Prime Minister Starmer named his cabinet.
  • The Japanese government noted that pay hikes at companies with more than 30 employees exceeded inflation for the first time in 26 months and that base pay in May increased at a 21-year high of 2.5% yr/yr.
  • South Korean battery maker SK On said that it is in crisis due to weak demand for electric vehicles in Europe and the United States, according to FT.
  • China's gold purchase slowed significantly for the second month in a row in June after steady growth during the previous year.
  • The People's Bank of China released some details on its large-scale bond borrowing plan.
  • The Reserve Bank of New Zealand's shadow board recommended that the RBNZ keep its official cash rate at 5.50% at this week's policy meeting.
  • Japan's May Average Cash Earnings rose 1.9% yr/yr (expected 2.1%; last 1.6%) and Overtime Pay increased 2.3% yr/yr (last -1.2%). May Current Account surplus reached JPY2.85 trln (expected JPY2.45 trln; last JPY2.05 trln). June Bank Lending was up 3.2% yr/yr (expected 3.1%; last 2.9%) and June Economy Watchers Current Index rose to 47.0 from 45.7 (expected 46.1).
  • Australia's May Home Loans were down 2.0% m/m (expected 2.0%; last 4.5%) and Invest Housing Finance was down 1.3% m/m (last 5.3%).
  • Eurozone's July Sentix Investor Confidence fell to -7.3 from 0.3 (expected -0.6).
  • Germany's May trade surplus reached EUR24.9 bln (expected EUR19.9 bln; last EUR22.2 bln) as imports fell 6.6% m/m (last 1.2%) and exports fell 3.6% m/m (last 1.7%).
• Today's Data:
  • Consumer credit increased by $11.3 bln in May (Briefing.com consensus $9.5 bln) after increasing an upwardly revised $6.5 bln (from $6.4 bln) in April. Revolving credit increased by $7.0 bln to $1.345 trln. while Nonrevolving credit increased by $4.4 bln to $3.720 trln.
    • The key takeaway from the report is that revolving credit growth accelerated strongly (+6.3% after a slight contraction in May, so the question is whether consumers are turning to revolving credit because of need or increased optimism about economic prospects.
• Commodities:
  • WTI crude: -1.1% to $82.33/bbl
  • Gold: -1.4% to $2365.00/ozt
  • Copper: -1.1% to $4.60/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0823
  • GBP/USD: UNCH at 1.2810
  • USD/CNH: UNCH at 7.2853
  • USD/JPY: UNCH at 160.75
• The Day Ahead:
  • 6:00 ET: June NFIB Small Business Optimism (prior 90.5)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results