Bond Market Update

Treasuries Rise Ahead of July FOMC Statement

• U.S. Treasuries rallied strongly on Tuesday, sending yields on the 10-yr note and the 30-yr bond to their lowest levels since early July. The market recovered a sizable chunk of yesterday's losses at the start, followed by a continued bid that persisted into the early afternoon. Longer tenors were at the forefront of the advance, but the entire complex rallied to new highs after the U.S. Treasury capped this week's note auction slate with a strong $44 bln 7-yr note offering. Today's advance sent yields on the 10-yr note and the 30-yr bond back below their respective 50-day moving averages with the 10-yr yield also sliding past its 200-day moving average. The rally preceded tomorrow's release of the FOMC policy statement, which is not expected to call for a rate cut, but the decision is not expected to be unanimous with at least one policymaker dissenting. Crude oil climbed back above its 200-day moving average (68.19), reaching its best level in more than a month, while the U.S. Dollar Index rose 0.3% to 98.89.
• Yield Check:
  • 2-yr: -5 bps to 3.88%
  • 3-yr: -6 bps to 3.82%
  • 5-yr: -7 bps to 3.91%
  • 10-yr: -9 bps to 4.33%
  • 30-yr: -9 bps to 4.87%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was increased to 2.9% from 2.4% in the latest estimate.
  • Australian press reported that President Trump threatened to double the baseline tariff that is being charged for Australian imports into the U.S.
  • A South Korean trade delegation is expected to visit Washington in the coming days.
  • Deutsche Bank no longer expects more cuts from the European Central Bank and it sees a rate hike in late 2026 as the next likely move.
  • The EU noted that it can't guarantee that $600 bln will be invested in the U.S. since the money would come entirely from the private sector.
  • U.K.'s June BoE Consumer Credit reached GBP1.417 bln (expected GBP1.200 bln; last GBP920 mln), June Mortgage Approvals hit 64,170 (expected 63,000; last 63,290), and June Net Lending to Individuals reached GBP6.757 bln (expected GBP3.700 bln; last GBP2.900 bln).
  • Spain's flash Q2 GDP expanded 0.7% qtr/qtr (expected 0.6%; last 0.6%), growing 2.8% yr/yr (last 2.8%). June Retail Sales were up 6.2% yr/yr (last 5.0%).
• Today's Data:
  • The Conference Board's Consumer Confidence Index rose to 97.2 in July (Briefing.com consensus 95.5) from an upwardly revised 95.2 (from 93.0) in June. In the same period a year ago, the index stood at 101.9.
    • The key takeaway from the report is that the improvement was driven by an increase in the expectations index, though that index remains below a level that is typically indicative of a recession ahead.
  • Job openings fell to 7.437 million in June from a revised 7.712 million (from 7.769 million) in May.
  • The advance goods trade deficit narrowed to $86.0 billion in June from a revised deficit of $96.4 billion (from -$96.6 billion) in May.
  • Advance Retail Inventories were up 0.3% in June after increasing 0.3% in May.
  • Advance Wholesale Inventories were up 0.2% in June after falling 0.3% in May.
  • The FHFA Housing Price Index was down 0.2% in May (Briefing.com consensus -0.2%) after falling a revised 0.3% (from -0.4%) in April.
  • The S&P Case-Shiller Home Price Index was up 2.8% year-over-year in May (Briefing.com consensus 3.0%) after being up 3.4% in April.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.092% (4.146%).
    • Bid-to-cover: 2.79 (2.61).
    • Indirect bid: 62.3% (70.5%).
    • Direct bid: 33.7% (19.4%).
• Commodities:
  • WTI crude: +3.7% to $69.22/bbl
  • Gold: +0.4% to $3323.90/ozt
  • Copper: +0.4% to $5.63/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1556
  • GBP/USD: UNCH at 1.3359
  • USD/CNH: UNCH at 7.1800
  • USD/JPY: -0.1% to 148.36
• The Day Ahead: 
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.8%) 
  • 8:15 ET: July ADP Employment Change (Briefing.com consensus 78,000; prior -33,000)
  • 8:30 ET: Advance Q2 GDP (Briefing.com consensus 2.5%; prior -0.5%) and advance Q2 GDP Deflator (Briefing.com consensus 2.6%; prior 3.8%)
  • 10:00 ET: June Pending Home Sales (Briefing.com consensus 0.4%; prior 1.8%)
  • 10:30 ET: Weekly crude oil inventories (prior -3.17 mln)
  • 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%)