Bond Market Update

Reversal Continues

• U.S. Treasuries continued retreating on Wednesday, returning yields on 10s and 30s to their closing levels from last Thursday while the 2-yr yield rose to the midpoint of its range from Friday. The trading day started with modest losses after the overnight session saw more improvement in sentiment, assisted by comments from Bank of Japan Deputy Governor Uchida said that the BoJ will not raise rates during market instability. A bit later in the night, shipping giant Maersk said that it does not see signs of an impending recession in the United States. The lower start was followed by a sideways drift during the first two hours of action and a continuation to fresh lows as the day went on. A poorly received $42 bln 10-yr note auction pressured longer tenors to fresh lows in the afternoon while the short end bounced alongside an intraday swoon in equities. Crude oil bounced off levels from early February with help from a bullish inventory report while the U.S. Dollar Index rose 0.3% to 103.22.
• Yield Check:
  • 2-yr: +2 bps to 4.00%
  • 3-yr: +3 bps to 3.84%
  • 5-yr: +7 bps to 3.80%
  • 10-yr: +8 bps to 3.97%
  • 30-yr: +8 bps to 4.26%

• News:
  • Former New York Fed President Dudley said in Bloomberg column that the Fed should bring rates down to a neutral level, which he believes is about 150-200 basis points below the current fed funds rate range.
  • China's July trade surplus reached $84.65 bln (expected $97.50 bln; last $99.05 bln) as imports rose 7.2% yr/yr (expected 3.5%; last -2.3%) and exports grew 7.0% (expected 9.7%; last 8.6%).
  • Japan's June Leading Index fell to 108.6 from 111.2 (expected 109.0) and Coincident Indicator was down 3.4% m/m (last 1.9%).
  • Australia's July AIG Manufacturing Index hit -19.5 (last -26.5) and AIG Construction Index hit -20.7 (last -23.2).
  • New Zealand's Q2 Employment increased by 0.4% qtr/qtr (expected -0.2%; last -0.2%). Q2 Labor Cost Index was up 0.9% qtr/qtr (expected 0.8%; last 0.8%). Q2 Unemployment Rate rose to 4.6% from 4.4% (expected 4.7%) and Participation Rate rose to 71.7% from 71.6% (expected 71.3%).
  • Germany's June Industrial Production was up 1.4% m/m (expected 1.0%; last -3.1%). June trade surplus reached EUR20.4 bln (expected surplus of EUR21.7 bln; last surplus of EUR25.3 bln) as imports rose 0.3% m/m (expected 2.8%; last -5.5%) and exports fell 3.4% m/m (expected -1.5%; last -3.1%).
  • U.K.'s July Halifax House Price Index was up 0.8% m/m (expected 0.2%; last 0.0%), rising 2.3% yr/yr (last 1.9%).
  • France's June trade deficit reached EUR6.1 bln (expected deficit of EUR7.5 bln; last deficit of EUR7.7 bln) and June Current Account deficit reached EUR2.6 bln (last deficit of EUR2.5 bln).
• Today's Data:
  • Consumer credit increased by $8.9 billion in June (Briefing.com consensus $10.0 billion) after increasing an upwardly revised $14.0 billion (from $11.3 billion) in May.
    • The key takeaway from the report is that revolving credit decreased after jumping to a fresh record in May, pointing to some newfound caution among consumers.
  • The weekly MBA Mortgage Index rose 6.9% to follow last week's 3.9% decrease. The Purchase Index was up 0.8% while the Refinance Index was up 15.9%.
  • Weekly crude oil inventories decreased by 3.73 mln barrels after decreasing by 3.44 mln barrels a week ago.
  • $42 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.960% (4.313%).
    • Bid-to-cover: 2.32 (2.52).
    • Indirect bid: 66.2% (66.9%). 
    • Direct bid: 16.0% (17.9%).
• Commodities:
  • WTI crude: +2.8% to $75.22/bbl
  • Gold: -0.1% to $2431.00/ozt
  • Copper: -2.5% to $3.94/lb
• Currencies:
  • EUR/USD: UNCH at 1.0925
  • GBP/USD: +0.1% to 1.2697
  • USD/CNH: +0.2% to 7.1746
  • USD/JPY: +1.6% to 146.90
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 242,000; prior 249,000) and Continuing Claims (prior 1.877 mln)
  • 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.6%)
  • 10:30 ET: Weekly natural gas inventories (prior +18 bcf)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results