Bond Market Update

Intraday Resilience on Display Again

• U.S. Treasuries overcame a modestly lower start for the second day in a row, finishing with gains that sent yields to fresh lows for the year ahead of tomorrow's release of the August CPI report (Briefing.com consensus 0.2%; prior 0.2%). Treasuries dipped out of the gate after a mixed night in global equity markets. Investors received the latest trade balance report from China, which showed a larger than expected surplus, but that was largely due to imports growing less than expected, which reflects weak domestic demand. Like yesterday, Treasuries began rising immediately after the cash start, continuing their rebound as the day went on. The market pulled back from highs in the late morning, but a strong $58 bln 3-yr note auction helped Treasuries continue to fresh highs in the early afternoon. The advance left the 2-yr yield within five basis points of its low from 2023 (3.549%) while the 30-yr yield finished just above its December low (3.943%). Crude oil plunged toward its 2023 low (63.64), reflecting ongoing growth worries, while the U.S. Dollar Index edged up 0.1% to 101.63.
• Yield Check:
  • 2-yr: -6 bps to 3.61%
  • 3-yr: -6 bps to 3.47%
  • 5-yr: -6 bps to 3.43%
  • 10-yr: -5 bps to 3.65%
  • 30-yr: -4 bps to 3.96%

• News:
  • JPMorgan Chase CEO Dimon said that he is not ready to rule out a potential stagflation in the U.S. economy, according to CNBC. 
  • Bank of America CEO Moynihan said that he worries about the Fed being potentially behind the curve, according to CNBC.
  • Former President Trump and Vice President Harris will take part in a debate this evening.
  • France's Finance Minister Le Maire said that the deficit target (5.1% of GDP) must be met this year.
  • British Prime Minister Starmer is setting the stage for "unpopular" decisions in the autumn budget.
  • Former European Central Bank President Draghi published a report calling on the EU to engage in radical reforms that would cost around EUR800 bln per year.
  • Australia's government is expected to strike down the proposal put forth by Treasurer Chalmers to overhaul the board of the Reserve Bank of Australia.
  • China's August trade surplus reached $91.02 bln (expected surplus of $81.40 bln; last surplus of $84.65 bln) as imports rose 0.5% yr/yr (expected 2.0%; last 7.2%) and exports grew 8.7% yr/yr (expected 6.5%; last 7.0%).
  • Japan's August Machine Tool Orders were down 3.5% yr/yr (last 8.4%).
  • Australia's September Westpac Consumer Sentiment was down 0.5% (last 2.8%). July Building Approvals rose 10.4% m/m, as expected (last -6.4%) and Private House Approvals rose 0.6% m/m, as expected (last -0.5%). August NAB Business Confidence fell to -4 from 1 and Business Survey fell to 3 from 6.
  • New Zealand's Q2 Manufacturing Sales Volume was up 0.6% qtr/qtr (last -0.3%).
  • Germany's August CPI was down 0.1% m/m, as expected (last 0.3%) but up 1.9% yr/yr, as expected (last 2.3%).
  • U.K.'s July Average Earnings Index + Bonus was up 4.0% yr/yr (expected 4.1%; last 4.6%). July three-month employment increased by 265,000 (expected 115,000; last 97,000) and July Unemployment Rate slipped to 4.1% from 4.2%, as expected. August Claimant Count reached 23,700 (expected 95,500; last 102,300).
  • Italy's July Industrial Production was down 0.9% m/m (expected -0.2%; last 0.5%), falling 3.3% yr/yr (last -2.6%).
  • Spain's July Industrial Production was down 0.4% yr/yr (last 0.2%).
• Today's Data:
  • The NFIB Small Business Optimism Index fell to 91.2 in August from 93.7 in July.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.440% (4.429%).
    • Bid-to-cover: 2.66 (2.59).
    • Indirect bid: 78.2% (62.5%).
    • Direct bid: 11.3% (19.4%).
• Commodities:
  • WTI crude: -4.1% to $65.85/bbl
  • Gold: +0.4% to $2542.20/ozt
  • Copper: -1.0% to $4.10/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1023
  • GBP/USD: +0.1% to 1.3081
  • USD/CNH: +0.2% to 7.1344
  • USD/JPY: -0.5% to 142.38
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 1.6%)
  • 8:30 ET: August CPI (Briefing.com consensus 0.2%; prior 0.2%) and Core CPI (Briefing.com consensus 0.2%; prior 0.2%)
  • 10:30 ET: Weekly crude oil inventories (prior -6.87 mln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note auction results