Bond Market Update

Upward Q2 GDP Revision Weighs

• U.S. Treasuries ended Thursday with modest losses after a slide from opening highs. Treasuries opened the day just above their flat lines after a subdued night in global equity markets. NVIDIA's (NVDA) quarterly results were strong overall but failed to meet sky high expectations. Treasuries slid from their starting highs after economic data released shortly after the open showed an upward revision to Q2 GDP (to 3.0% from 2.8%) and a decrease in weekly jobless claims (to 231,000 from 233,000). The post-data selling lifted yields on 10s and 30s past their highs from yesterday, where the market bounced, recovering a portion of its losses as the day went on. The U.S. Treasury concluded this week's mediocre note auction slate with a soft 7-yr note sale. Crude oil recovered yesterday's loss while the U.S. Dollar Index rose 0.3% to 101.34.
• Yield Check:
  • 2-yr: +2 bps to 3.89%
  • 3-yr: +3 bps to 3.76%
  • 5-yr: UNCH at 3.67%
  • 10-yr: +3 bps to 3.87%
  • 30-yr: +2 bps to 4.15%

• News:
  • Fitch affirmed the AA+ rating for the U.S. with a Stable outlook.
  • Atlanta Fed President (FOMC voter) Bostic said that it may be time to cut rates, but he wants to see more data, according to Bloomberg.
  • Sweden's Riksbank is on track to cut rates two or three more times this year, according to Deputy Governor Bunge.
  • The Italian government is expected to signal commitment to reducing its deficit-to-GDP ratio below the EU's 3.0% target in 2026.
  • Chinese banks struggled after Bank of Communications reported poor results.
  • Japan's August Household Confidence remained at 36.7 (expected 36.9).
  • Australia's Q2 Building Capital Expenditure decreased 3.8% qtr/qtr (last -0.9%), Q2 Plant/Machinery Capital Expenditure fell 0.5% qtr/qtr (last 3.7%), and Q2 Private New Capital Expenditure was down 2.2% qtr/qtr (expected 0.9%; last 1.9%).
  • New Zealand's August ANZ Business Confidence jumped to 50.6 from 27.1.
  • Eurozone's August Business and Consumer Survey rose to 96.6 from 96.0 (expected 95.8).
  • Germany's flash August CPI was down 0.1% m/m (expected 0.0%; prior 0.3%) and up 1.9% yr/yr (expected 2.1%; last 2.3%).
  • Spain's flash August CPI was unchanged m/m (expected 0.1%; last -0.5%), rising 2.2% yr/yr (expected 2.4%; last 2.8%). August Core CPI was up 2.7% yr/yr (last 2.8%). July Business Confidence ticked up to -3.6 from -4.2.
• Today's Data:
  • The second estimate for Q2 GDP was revised up to 3.0% from the preliminary estimate of 2.8% on the back of an upward revision to consumer spending. The GDP Deflator was revised up to 2.5% from 2.3%.
    • The key takeaway from the report is that consumer spending was solid in the second quarter, exceeding the prior eight quarter average of 2.2%.
  • Initial jobless claims for the week ending August 24 decreased by 2,000 to 231,000 while continuing jobless claims for the week ending August 17 increased by 13,000 to 1.868 million.
    • The key takeaway from the report is the steady standing of initial jobless claims, which remain well below levels typically associated with an economy in recession.
  • The Advance Intl. Trade in Goods deficit widened to $102.7 billion in July from an upwardly revised $96.6 billion (from -$96.8 billion) in June, with exports roughly flat and imports $6.1 billion more than June imports.
    • The key takeaway from the report is that the uptick in imports was led by industrial supplies and capital goods, which is what one would expect in a growing economy.
  • Advance Retail Inventories were up 0.8% in July after increasing a revised 0.9% (from 0.7%) in June.
  • Advance Wholesale Inventories were up 0.3% in July after increasing a revised 0.1% (from 0.2%) in June.
  • Pending Home Sales were down 5.5% in July (Briefing.com consensus 1.2%) after increasing 4.8% in June.
  • Weekly natural gas inventories increased by 35 bcf for the second consecutive week.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.770% (4.373%).
    • Bid-to-cover: 2.50 (2.56).
    • Indirect bid: 75.1% (68.6%).
    • Direct bid: 11.2% (17.5%).
• Commodities:
  • WTI crude: +1.8% to $75.90/bbl
  • Gold: +0.9% to $2560.40/ozt
  • Copper: +0.5% to $4.23/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1079
  • GBP/USD: -0.1% to 1.3170
  • USD/CNH: -0.5% to 7.0943
  • USD/JPY: +0.3% to 144.85
• The Day Ahead:
  • 8:30 ET: July Personal Income (Briefing.com consensus 0.2%; prior 0.2%), Personal Spending (Briefing.com consensus 0.5%; prior 0.3%), PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.1%; prior 0.2%)
  • 10:00 ET: final August University of Michigan Consumer Sentiment (Briefing.com consensus 67.8; prior 67.8)