Bond Market Update

Steady Bounce Produces Mixed Finish

• U.S. Treasuries finished Tuesday on a mixed note after spending the session in a steady rise off their morning lows. Treasuries opened the day with slim losses that briefly lifted the 30-yr yield to a level not seen in more than a week. The market did not extend its initial losses even though the Consumer Confidence report for August (103.5; Briefing.com consensus 100.0) was ahead of expectations and included an upward revision to July's reading (to 101.9 from 100.3). Treasuries began rising off their lows shortly after the report crossed the wires, continuing their recovery into the afternoon. The 2-yr note turned positive around noon, extending to a fresh high after today's $69 bln 2-yr note auction met solid demand. The last two hours of trade saw a bit more buying with 5s and shorter tenors finishing higher while 10s and 30s recorded slim losses, widening the 2s10s spread by four basis points to -7 bps. The market will not receive any top-tier data tomorrow, but the U.S. Treasury will sell $70 bln in 5-yr notes at 13:00 ET. Crude oil gave back some of its gains from the past three days while the U.S. Dollar Index fell 0.3% to 100.55.
• Yield Check:
  • 2-yr: -3 bps to 3.90%
  • 3-yr: -2 bps to 3.72%
  • 5-yr: -1 bp to 3.66%
  • 10-yr: +1 bp to 3.83%
  • 30-yr: +2 bps to 4.13%

• News:
  • British Prime Minister Starmer acknowledged the existence of a GBP22 bln budget gap and said that the Autumn budget will be painful.
  • French President Macron has reportedly ruled out naming a prime minister from one of the left-wing parties and will continue searching for a candidate.
  • Japan's Prime Minister Kishida will visit South Korea at the end of next week.
  • The Chinese government issued 16,000 license plates for testing autonomous vehicles and designated some public roads for testing purposes.
  • South Korea's finance ministry expects that bond sales in 2025 will see a 20% increase over 2024.
  • French President Macron has reportedly ruled out naming a prime minister from one of the left-wing parties and will continue searching for a candidate.
  • British Prime Minister Starmer acknowledged the existence of a GBP22 bln budget gap and said that the Autumn budget will be painful.
  • China's July Industrial Profit was up 3.6% YTD (last 3.5%).
  • Japan's August Corporate Services Price Index rose 2.8% yr/yr (expected 2.9%; last 3.1%). June BoJ Core CPI was up 1.8% yr/yr (expected 2.1%; last 2.1%). 
  • Hong Kong's July trade deficit reached $21.8 bln (last deficit of $55.7 bln) as imports rose 9.9% m/m (last 9.0%) and exports increased 13.1% m/m (last 10.7%).
  • Germany's Q2 GDP contracted 0.1% qtr/qtr, as expected (last 0.2%) but was unchanged yr/yr (expected -0.1%; last -0.2%). September GfK Consumer Climate fell to -22.0 from -18.6.
  • U.K.'s August CBI Distributive Trades Survey rose to -27 from -43 (expected -11).
• Today's Data:
  • The Conference Board's Consumer Confidence Index improved to 103.5 in August (Briefing.com consensus 100.0) from an upwardly revised 101.9 (from 100.3) in July.
    • The key takeaway from the report is that consumers are starting to show more concern about labor market conditions, which could eventually translate into lower consumer spending activity if that labor market angst leads to deferred discretionary spending decisions.
  • The FHFA Housing Price Index was down 0.1% in June after no change in May.
  • The S&P Case-Shiller Home Price Index rose 6.5% in June (Briefing.com consensus 6.0%) after increasing a revised 6.9% (from 6.8%) in May.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.874% (4.748%).
    • Bid-to-cover: 2.68 (2.65).
    • Indirect bid: 69.0% (64.5%).
    • Direct bid: 19.1% (20.4%).
• Commodities:
  • WTI crude: -2.3% to $75.61/bbl
  • Gold: UNCH at $2553.90/ozt
  • Copper: +1.9% to $4.30/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1183
  • GBP/USD: +0.5% to 1.3254
  • USD/CNH: UNCH at 7.1211
  • USD/JPY: -0.3% to 144.05
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -10.1%) 
  • 10:30 ET: Weekly crude oil inventories (prior -4.65 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results