Bond Market Update

Higher Start Ahead

• U.S. Treasuries are on track for a higher start after a steady rise through the second half of the overnight session. Treasury futures spent the bulk of Asian trade in a sideways range with a slight upward bias, turning higher alongside other sovereign debt once the focus shifted to action in Europe. President Trump said that his administration will send letters to different countries specifying conditions for trade deals. He also said that the EU wants to negotiate and he will comment on progress in a week. Geopolitical concerns are also in the picture after yesterday's report that Embassy staff in Baghdad received clearance to leave voluntarily, suggesting the presence of rising tension in the region. Crude oil soared yesterday, but it is pulling back this morning. The U.S. Dollar Index is down 0.7% at 97.94. The market will receive May PPI (Briefing.com consensus 0.2%) at 8:30 ET and the U.S. Treasury will hold a $22 bln 30-yr bond reopening this afternoon.
• Yield Check:
  • 2-yr: -3 bps to 3.91%
  • 3-yr: -4 bps to 3.87%
  • 5-yr: -4 bps to 3.97%
  • 10-yr: -4 bps to 4.37%
  • 30-yr: -5 bps to 4.86%

• News:
  • Japan's Prime Minister Ishiba refuted the idea that his government is looking into a cash payout proposal, according to Nikkei.
  • The Reserve Bank of India plans to use its cash reserve ratio more frequently as a monetary policy tool, according to Reuters.
  • Bank of Korea Governor Rhee called for more fiscal stimulus to support the economy, according to Yonhap.
  • Latest figures from Lipper showed robust inflows into European funds in May.
  • Japan's Q2 BSI Large Manufacturing Conditions fell to -4.8 from -2.4 (expected 0.8).
  • Hong Kong's Q1 PPI was up 4.8% (last 4.1%); Q1 Industrial Production rose 0.7% yr/yr (last 0.9%).
  • UK's April GDP contracted 0.3% m/m (expected -0.1%; last 0.2%), but was up 0.9% yr/yr (last 1.1%); April Industrial Production was down 0.6% m/m (expected -0.4%; last -0.7%) and down 0.3% yr/yr (expected -0.2%; last -0.7%); April Construction Output rose 0.9% m/m (expected 0.3%; last 0.5%); April Manufacturing Production was down 0.9% m/m (expected -0.8%; last -0.8%); April Trade deficit reached GBP23.21 bln (expected -GBP20.80 bln; last -GBP19.87 bln).
  • Italy's Quarterly Unemployment Rate remained at 6.1% (expected 6.0%).
• Commodities:
  • WTI Crude: -1.9% to $66.83/bbl
  • Gold: +1.7% to $3400.40/ozt
  • Copper: -0.2% to $4.805/lb
• Currencies:
  • EUR/USD: +1.0% to 1.1596
  • GBP/USD: +0.3% to 1.3581
  • USD/CNH: -0.3% to 7.1760
  • USD/JPY: -0.6% to 143.72
• Data out Today:
  • 8:30 ET: May PPI (Briefing.com consensus 0.2%; prior -0.5%), Core PPI (Briefing.com consensus 0.3%: prior -0.4%), weekly Initial Claims (Briefing.com consensus 250,000; prior 247,000), and Continuing Claims (prior 1.904 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +122 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr bond reopening results