Bond Market Update

Short End Resists Intraday Pressure

• U.S. Treasuries finished Wednesday on a mixed note, as the 2-yr note settled higher after staying in positive territory throughout the day while longer tenors recorded slim losses. Today's mixed, but largely flat finish, preceded the release of NVIDIA's (NVDA) quarterly report, which will serve as a bellwether for the state of market's hottest sector. In addition, the market will receive the second reading of Q2 GDP tomorrow morning (prior 2.8%). Treasuries followed yesterday's advance in the 5-yr note and shorter tenors with a higher start that was paced by the front end. The 2-yr note defended its starting gain, rising to a fresh high during the initial hour of action, while longer tenors quickly backed off their starting highs, finding support near yesterday's closing levels. The 5-yr note and longer tenors slipped to fresh lows in the early afternoon, responding to today's $70 bln 5-yr note sale, which met ok demand. The auction drew a 0.3 bps tail, but the bid-to-cover ratio (2.41x) was in line with the prior 12-auction average while indirect takedown (70.5% vs 66.5% average) was above average. Longer tenors attempted a bounce during the final couple hours of trade, but they returned to their lows ahead of the close, while the 2-yr note held onto its gain. Crude oil retreated for the second consecutive day with help from a bearish inventory report while the U.S. Dollar Index rose 0.6% to 101.11.
• Yield Check:
  • 2-yr: -3 bps to 3.87%
  • 3-yr: +1 bp to 3.73%
  • 5-yr: +1 bp to 3.67%
  • 10-yr: +1 bp to 3.84%
  • 30-yr: UNCH at 4.13%

• News:
  • Hungary's central bank left its policy rate unchanged at 6.75%, as expected.
  • British Prime Minister Starmer is meeting with German Chancellor Scholz to discuss a new cooperation treaty.
  • Bank of Japan Deputy Governor Himino said that the central bank will adjust the degree of easing if there is greater certainty.
  • Chinese developer Country Garden is reportedly considering an additional delay to its yuan-denominated bond payments.
  • Japan's June Leading Index fell to 109.0 from 111.2 (expected 108.6) and Coincident Indicator was down 3.9% m/m (expected -3.4%; last 1.9%).
  • Australia's July CPI decelerated to 3.5% yr/yr from 3.8% (expected 3.4%) and Q2 Construction Work Done was up 0.1% qtr/qtr (expected 0.8%; last -2.0%).
  • Eurozone's July M3 Money Supply rose 2.3% yr/yr (expected 2.7%; last 2.2%), July Loans to nonfinancials were up 0.6% yr/yr (last 0.7%), and July Private Sector Loans rose 0.5% yr/yr, as expected (last 0.3%).
  • France's August Consumer Confidence rose to 92 from 91, as expected.
  • Italy's June Industrial Sales were up 0.1% m/m (last -1.0%) but down 3.7% yr/yr (last -4.8%).
  • Swiss August ZEW Expectations fell to -3.4 from 9.4.
• Today's Data:
  • The weekly MBA Mortgage Index was up 0.5% after falling 10.1% a week ago. The Purchase Index rose 0.9% while the Refinance Index was down 0.1%.
  • Weekly crude oil inventories decreased by 850,000 barrels after decreasing by 4.65 mln barrels a week ago.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.645% (4.371%).
    • Bid-to-cover: 2.41 (2.41).
    • Indirect bid: 70.5% (66.5%).
    • Direct bid: 16.3% (17.9%).
• Commodities:
  • WTI crude: -1.4% to $74.59/bbl
  • Gold: -0.6% to $2538.00/ozt
  • Copper: -2.1% to $4.21/lb
• Currencies:
  • EUR/USD: -0.6% to 1.1117
  • GBP/USD: -0.5% to 1.3187
  • USD/CNH: +0.2% to 7.1329
  • USD/JPY: +0.5% to 144.70
• The Day Ahead:
  • 8:30 ET: Q2 GDP -- second estimate (prior 2.8%), Q2 GDP Deflator -- second estimate (prior 2.3%), weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 mln), advance July goods trade balance (prior -$96.6 bln), advance July Retail Inventories (prior -$96.8 bln), advance Retail Inventories (prior 0.7%), and advance Wholesale Inventories (prior 0.2%)
  • 10:00 ET: July Pending Home Sales (Briefing.com consensus 1.2%; prior 4.8%)
  • 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results