Bond Market Update

Steady Ahead of May CPI

• U.S. Treasuries finished Tuesday with modest gains in longer tenors while the 2-yr note settled with a slight loss after reversing from a higher start ahead of tomorrow's release of May CPI (Briefing.com consensus 0.2%). Treasuries opened with relative strength in longer tenors after overnight action featured the release of some underwhelming employment figures from the U.K. that boosted hopes for a September rate cut from the Bank of England. The market ranged near its starting levels through the first two hours of trade before retreating from morning highs. The retreat sent the 2-yr note into negative territory while longer tenors found support right on yesterday's closing levels. The rest of the session saw a slow rise off lows in longer tenors while shorter tenors dipped to fresh lows after a soft $58 bln 3-yr note sale, which will be followed by a $39 bln 10-yr note reopening tomorrow. The day went by without any major updates from the U.S.-China talks in London, other than a reassurance from the White House that talks are going well. Crude oil gave back its morning gain while the U.S. Dollar Index rose 0.2% to 99.09.
• Yield Check:
  • 2-yr: +1 bp to 4.01%
  • 3-yr: +1 bp to 3.99%
  • 5-yr: UNCH at 4.08%
  • 10-yr: -1 bp to 4.47%
  • 30-yr: -1 bp to 4.94%

• News:
  • Japan's lead negotiator, Ryosei Akazawa, will be returning to the U.S. on Friday to continue working out a deal but said, according to The Japan Times, that "it feels like we're still in a dense fog."
  • Japan's LDP is reportedly looking to provide cash handouts ahead of the upper house election this summer to deal with cost-of-living increases.
  • Japan's May Machine Tool Orders were up 3.4% yr/yr (last 7.7%).
  • Australia's June Westpac Consumer Sentiment was up 0.5% (last 2.2%); May NAB Business Confidence rose to 2 from -1.
  • South Korea's April Current Account surplus reached $5.7 bln (last $9.1 bln).
  • Eurozone's June Sentix Investor Confidence rose to 0.2 from -8.1 (expected -5.3).
  • UK's April Unemployment Rate rose to 4.6% from 4.5% (expected 4.6%); Claimant Count reached 33.1K (expected 9.5K; last -21.2K); Average Earnings Index + Bonus was up 5.3% yr/yr (expected 5.5%; last 5.6%).
  • Italy's Industrial Production was up 1.0% m/m (expected 0.0%; last 0.0%) and up 0.3% yr/yr (last -1.8%).
  • Switzerland's SECO Consumer Climate rose to -37 from -39 (expected -38).
• Today's Data:
  • The NFIB Small Business Optimism Index rose to 98.8 in May from 95.8 in April.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.972% (4.050%). 
    • Bid-to-cover: 2.52 (2.59).
    • Indirect bid: 66.8% (66.3%). 
    • Direct bid: 18.0% (17.9%).
• Commodities:
  • WTI crude: -0.5% to $64.96/bbl
  • Gold: -0.4% to $3343.00/ozt
  • Copper: -0.4% to $4.90/lb
• Currencies:
  • EUR/USD: UNCH at 1.1420
  • GBP/USD: -0.4% to 1.3493
  • USD/CNH: +0.1% to 7.1895
  • USD/JPY: +0.3% to 145.03
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -3.9%)
  • 8:30 ET: May CPI (Briefing.com consensus 0.2%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%)
  • 10:30 ET: Weekly crude oil inventories (prior -4.30 mln)
  • 14:00 ET: May Treasury Budget (prior $258.4 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results