Bond Market Update

Bid Persists

• U.S. Treasuries are on track for another higher start with the 2-yr yield expected to open the session at its lowest level of the year after overnight strength in the futures market. There is more potential volatility ahead, given the looming release of the Employment Situation report for July (Briefing.com consensus 170,000; prior 206,000). Treasury futures continued building on yesterday's advance after the cash close, staying on an upward path through the night. The market reached highs shortly after 6:00 ET, followed by a shallow dip from best levels of the morning. Overnight action saw weakness in global equities and gains in sovereign debt alongside some hawkishness from a former Bank of Japan official. Meanwhile, Bank of England Governor Bailey said that it would be wrong to assume that all upcoming meetings will result in cuts while Chief Economist Pill said that the central bank is not committing to additional rate cuts. Crude oil hovers near yesterday's intraday low while the U.S. Dollar Index is down 0.3% at 104.07.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -4 bps to 3.93%
  • 5-yr: -3 bps to 3.81%
  • 10-yr: -4 bps to 3.94%
  • 30-yr: -3 bps to 4.24%

• News:
  • Japan's Industry Minister Saito said that economic fundamentals are "not bad" while a former Bank of Japan official said that another rate hike is likely in October.
  • South Korea's vice finance minister said that inflation is expected to begin approaching target after this month.
  • A poll conducted by YouGov showed that British inflation expectations for the year ahead ticked up to 2.7% from 2.6%.
  • International Consolidated Airlines reported solid results for the quarter and resumed its dividend.
  • Japan's July Monetary Base was up 1.2% yr/yr (expected 0.9%; last 0.6%). 
  • South Korea's July CPI was up 0.3% m/m, as expected (last -0.2%), rising 2.6% yr/yr (expected 2.5%; last 2.4%).
  • Australia's July Home Loans rose 0.5% m/m (expected -1.0%; last -1.9%) and Invest Housing Finance was up 2.7% m/m (last -1.3%). Q2 PPI was up 1.0% qtr/qtr, as expected (last 0.9%), rising 4.8% yr/yr (last 4.3%).
  • France's June Industrial Production was up 0.8% m/m (expected 1.0%; last -2.2%) and June government budget deficit reached EUR103.5 bln (last deficit of EUR113.5 bln).
  • Italy's June Industrial Production was down 2.6% yr/yr (last -3.3%) and June Retail Sales were down 0.2% m/m (expected 0.2%; last 0.4%), falling 1.0% yr/yr (last 0.5%).
  • Spain's July Unemployment decreased by 10,800 (expected -17,400; last -46,800).
  • Swiss July CPI was down 0.2% m/m, as expected (last 0.0%) but up 1.3% yr/yr, as expected (last 1.3%). July procure.ch PMI hit 43.5 (expected 44.4; last 43.9).
• Commodities:
  • WTI Crude: -0.3% to $76.11/bbl
  • Gold: +0.9% to $2503.80/ozt
  • Copper: +0.9% to $4.120/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0829
  • GBP/USD: UNCH at 1.2739
  • USD/CNH: -0.6% to 7.2068
  • USD/JPY: -0.2% to 149.01
• Data out Today:
  • 8:30 ET: July Nonfarm Payrolls (Briefing.com consensus 170,000; prior 206,000), Nonfarm Private Payrolls (Briefing.com consensus 153,000; prior 136,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 4.1%; prior 4.1%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
  • 10:00 ET: June Factory Orders (Briefing.com consensus 0.4%; prior -0.5%)