Bond Market Update

Longer Tenors Bounce Ahead of Busy Data Week

• U.S. Treasuries finished a volatile week on an unassuming note with longer tenors spending the entire session near their opening highs while the 2-yr note lagged, ending little changed. The Friday session was quiet from the start as Treasuries edged higher after three days of losses after a night that saw a positive finish to the week from Japan's Nikkei (+0.6%) and indications that the yen carry trade has been mostly unwound. The market did not receive any domestic data while economic news from overseas did not include any surprises. Treasuries added to their gains during the first hour of action, but the appetite for extending the bid was limited, resulting in a mid-morning pullback that returned longer tenors to their starting levels while the 2-yr note underperformed, ending with a modest loss. Next week will bring a full slate of economic reports, headlined by July PPI (Briefing.com consensus 0.1%; prior 0.2%) on Tuesday and CPI (Briefing.com consensus 0.2%; prior -0.1%) on Wednesday, so the potential for volatility will remain elevated. This week's action put some renewed pressure on the 2s10s spread, compressing it by three basis points to -11 basis points. Crude oil extended this week's gain to $3.16, or 4.3%, while the U.S. Dollar Index slipped 0.1% to 103.16 today, ending the week with a loss of 0.1%.
• Yield Check:
  • 2-yr: +1 bp to 4.05% (+18 bps this week)
  • 3-yr: UNCH at 3.88% (+18 bps this week)
  • 5-yr: -4 bps to 3.80% (+18 bps this week)
  • 10-yr: -6 bps to 3.94% (+15 bps this week)
  • 30-yr: -6 bps to 4.23% (+12 bps this week)

• News:
  • China sold 50-yr bonds at a record low yield.
  • Italian banks may reportedly face some pressure to increase interest rates on deposits.
  • China's July CPI was up 0.5% m/m (expected 0.3%; last -0.2%), rising 0.5% yr/yr (expected 0.3%; last 0.2%). July PPI was down 0.8% m/m (expected -0.9%; last -0.8%).
  • Japan's July M2 Money Stock was up 1.4% yr/yr (expected 1.6%; last 1.5%).
  • Germany's July CPI was up 0.3% m/m, as expected (last 0.1%), rising 2.3% yr/yr, as expected (last 2.2%).
  • France's Q2 Unemployment Rate fell to 7.3% from 7.5% (expected 7.5%).
  • Italy's July CPI was up 0.4% m/m (expected 0.5%; last 0.1%), rising 1.3% yr/yr, as expected (last 0.8%). June trade surplus reached EUR5.065 bln (expected surplus of EUR5.550 bln; last surplus of EUR6.377 bln).
  • Swiss Q3 SECO Consumer Climate rose to -19 from -24 (expected -36).
• Commodities:
  • WTI crude: +0.8% to $76.78/bbl
  • Gold: +0.4% to $2473.90/ozt
  • Copper: +0.8% to $4.00/lb
• Currencies:
  • EUR/USD: UNCH at 1.0919
  • GBP/USD: +0.1% to 1.2756
  • USD/CNH: -0.1% to 7.1747
  • USD/JPY: -0.4% to 146.60
• The Week Ahead:
  • Monday: July Treasury Budget (prior -$66.0 bln) at 14:00 ET
  • Tuesday: July NFIB Small Business Optimism (prior 91.5) at 6:00 ET; July PPI (prior 0.2%) and Core PPI (prior 0.4%) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 6.9%) at 7:00 ET; July CPI (prior -0.1%) and Core CPI (prior 0.1%) at 8:30 ET; and weekly crude oil inventories (prior -3.73 mln) at 10:30 ET
  • Thursday: July Retail Sales (prior 0.0%), Retail Sales ex-auto (prior 0.4%), weekly Initial Claims (prior 233,000), Continuing Claims (prior 1.875 mln), July Import Prices (prior 0.0%), Import Prices ex-oil (prior 0.2%), Export Prices (prior -0.5%), Export Prices ex-agriculture (prior -0.6%), and Empire State Manufacturing Survey (prior -6.6) at 8:30 ET; July Industrial Production (prior 0.6%) and Capacity Utilization (prior 78.8%) at 9:15 ET; June Business Inventories (prior 0.5%) and August NAHB Housing Market Index (prior 42) at 10:00 ET; weekly natural gas inventories (prior +21 bcf) at 10:30 ET; and June Net Long-Term TIC Flows (prior -$54.6 bln) at 16:00 ET
  • Friday: July Housing Starts (prior 1.353 mln) and Building Permits (prior 1.446 mln) at 8:30 ET; and preliminary August University of Michigan Consumer Sentiment (prior 66.4) at 10:00 ET