Bond Market Update

Treasuries Slip Ahead of Powell Speech

• U.S. Treasuries finished Thursday on a firmly lower note, sending yields on most tenors back to their closing levels from Monday ahead of tomorrow's speech from Fed Chairman Powell. Treasuries followed two days of solid gains with a lower start after a night that featured the release of flash August PMI readings from major economies. The reports were in line with the existing trend as Manufacturing readings from Japan (49.5), Australia (48.7), Germany (42.1) and France (42.1) remained in contraction while readings from India (57.9) and the U.K. (52.5) pointed to ongoing expansion. Services PMI readings, however, remained above 50.0 in all of these economies. Treasuries tried to stage a rebound during the early part of the session, but faced renewed pressure when flash Manufacturing (48.0; prior 49.6) and Services (55.2; prior 55.0) PMI readings for the U.S. crossed the wires. The rest of the session saw a bit more selling with Treasuries settling just above their midday lows. Crude oil bounced from its lowest settlement since early January while the U.S. Dollar Index rose 0.5% to 101.52, climbing off its lowest level since late December. Tomorrow's session will see just one economic release but Fed Chairman Powell will speak at the Jackson Hole Economic Symposium at 10:00 ET, less than a month before the September FOMC meeting, which is expected to result in a rate cut.
• Yield Check:
  • 2-yr: +9 bps to 4.01%
  • 3-yr: +9 bps to 3.82%
  • 5-yr: +9 bps to 3.73%
  • 10-yr: +8 bps to 3.86%
  • 30-yr: +8 bps to 4.13%

• News:
  • Philadelphia Fed President (non-voter) Harker spoke in favor of a September rate cut, according to Reuters.
  • Federal and state tax revenue in Germany was down 7.9% yr/yr this year.
  • Norway's central bank raised its one-year inflation outlook to 3.1% from 2.8% while the 2-3 year outlook was increased to 4.1% from 4.0%.
  • The Bank of Korea left its repurchase rate at 3.50%, as expected, and lowered its 2024 CPI forecast to 2.5% from 2.6%.
  • Bank of Japan Governor Ueda will take part in a parliamentary Q&A session tomorrow.
  • China's Commerce Ministry has launched an anti-subsidy probe into dairy imports from the EU.
  • Japan's flash August Manufacturing PMI hit 49.5 (expected 49.8; last 49.1) and flash Services PMI hit 54.0 (last 53.7).
  • India's flash August Manufacturing PMI hit 57.9 (last 58.1) and flash Services PMI hit 60.4 (last 60.3).
  • Australia's flash August Manufacturing PMI hit 48.7 (last 47.5) and flash Services PMI hit 52.2 (last 50.4).
  • Eurozone's flash August Manufacturing PMI hit 45.6 (expected 45.7; last 45.8) and flash Services PMI hit 53.3 (expected 51.7; last 51.9).
  • Germany's flash August Manufacturing PMI hit 42.1 (expected 43.4; last 43.2) and flash Services PMI hit 51.4 (expected 52.3; last 52.5).
  • U.K.'s flash August Manufacturing PMI hit 52.5 (expected 52.1; last 52.1) and flash Services PMI hit 53.3 (expected 52.8; last 52.5). August CBI Industrial Trends Orders rose to -22 from -32 (expected -26).
  • France's flash August Manufacturing PMI hit 42.1 (expected 44.4; last 44.0) and flash Services PMI hit 55.0 (expected 50.2; last 50.1).
• Today's Data:
  • Initial jobless claims for the week ending August 17 increased by 4,000 to 232,000 (Briefing.com consensus 225,000) and continuing jobless claims for the week ending August 10 increased by 4,000 to 1.863 million.
    • The key takeaway from the report is that it won't alter the market's rate cut view or the inclination to think the economy can avoid a hard landing.
  • S&P Global U.S. Manufacturing PMI hit 48.0 in the flash reading for August, down from 49.6 in July.
  • S&P Global U.S. Services PMI hit 55.2 in the flash reading for August, down from 55.0 in July.
  • Weekly natural gas inventories increased by 35 bcf after decreasing by 6 bcf a week ago.
  • The U.S. Treasury sold $8 bln in 30-yr TIPS at a high yield of 2.055%, tailing the when-issued yield by a basis point. The bid-to-cover ratio reached 2.61x.
• Commodities:
  • WTI crude: +1.5% to $73.01/bbl
  • Gold: -1.2% to $2517.90/ozt
  • Copper: -1.2% to $4.14/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1110
  • GBP/USD: UNCH at 1.3091
  • USD/CNH: +0.2% to 7.1464
  • USD/JPY: +0.8% to 146.25
• The Day Ahead:
  • 10:00 ET: July New Home Sales (Briefing.com consensus 628,000; prior 617,000)