Bond Market Update

Steepening Action

• U.S. Treasuries were on the softer side today in a curve-steepening trade driven by more weakness at the back end of the curve than the front of the curve. Overall, there wasn't a lot of conviction in today's trade, which featured a lot of macro headlines, including stronger-than-expected May retail sales out of China and reports that Iran is working diplomatic channels to try to negotiate a ceasefire agreement with Israel. Today's 20-yr bond reopening was met with decent demand; meanwhile, the lone U.S. release on today's economic calendar -- the June Empire State Manufacturing Survey -- checked in weaker than expected, although that news was offset by an indication that firms turned positive about conditions for the next six months.
• Yield check:
  • 2-yr: +1 bp to 3.97%
  • 3-yr: +1 bp to 3.93%
  • 5-yr: +2 bps to 4.04%
  • 10-yr: +4 bps to 4.46%
  • 30-yr: +4 bps to 4.96%
• News:
  • President Trump, in an interview, says it is "possible" U.S. could get involved in Israel's military operation in Iran, according to ABC News
  • China reported stronger-than-expected Retail Sales growth for May (6.4%; expected 4.9%), but Industrial Production growth (5.8%; expected 5.9%) was shy of estimates
  • The Bank of Japan will announce its latest policy decision overnight, but a rate hike is not expected
  • Senate Majority Leader John Thune in interview believes House & Senate will reach a compromised figure on state and local tax deduction and says Senate will work through July 4th recess to make sure large reconciliation bill can pass, according to Fox News
  • Japan & U.S. will try to reach trade agreement during G-7 this week, according to Bloomberg
  • Iran is working diplomatic channels with an intention of trying to negotiate a ceasefire agreement soon with Israel
  • Punchbowl News reporter Jake Sherman says Senate will put a $10K SALT cap in their version of large reconciliation bill; they see this as a negotiating mark (SALT cap in House version of the bill is $40K)
  • President Trump expressed optimism around a trade deal with Canada after meeting with Prime Minister Mark Carney, according to Politico
  • Senate version of large reconciliation bill will lower Medicaid provider tax to 3.5%; draft of bill expected tonight, according to Politico
  • President Trump will not sign G-7 statement calling for de-escalation between Israel and Iran, although there is some hope that he can be persuaded, according to CNN
• Today's Data:
  • The Empire State Manufacturing Survey for June was weaker than expected at -16.0 (Briefing.com consensus -6.6; prior -9.2), with the indexes for new orders and shipments both declining. This was the fourth consecutive decline in manufacturing activity in New York State; however, firms turned positive about conditions for the next six months.
  • The high yield of 4.942% at the 20-yr bond reopening stopped on the screws of the when-issued yield on decent dollar demand.
• Commodities:
  • WTI crude: -1.8% to $71.83/bbl
  • Gold: -1.0% to $3417.20/toz
  • Copper: +0.4% to $4.84/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1574
  • GBP/USD: +0.2% to 1.3578
  • USD/CNH: -0.1% to 7.1816
  • USD/JPY: +0.4% to 144.64
• The Day Ahead:
  • 08:30 ET: May Retail Sales (Briefing.com consensus -0.6%; prior 0.1%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.1%; prior 0.1%)
  • 08:30 ET: May Import Prices (prior 0.1%), Import Prices, Ex-Fuel (prior 0.4%), Export Prices (prior 0.1%), and Export Prices, ex ag (prior 0.1%)
  • 09:15 ET: May Industrial Production (Briefing.com consensus 0.1%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 77.7%; prior 77.7%)
  • 10:00 ET: April Business Inventories (Briefing.com consensus 0.0%; prior 0.1%)
  • 10:00 ET: June NAHB Housing Market Index (Briefing.com consensus 36; prior 34)