Bond Market Update

Focus Remains on Potential September Rate Cut

• U.S. Treasuries recorded solid gains on Wednesday, sending the 2-yr yield toward its August low (3.653%) while yields slipped to fresh lows for the week. The bulk of today's gains were recorded at the start after Treasury Secretary Bessent made two television appearances since yesterday's close, arguing for a 50-basis point rate cut in September, followed by continued loosening that would total at least 150 basis points. Mr. Bessent's comments essentially cemented expectations for a 25-basis point cut on September 17 with the market now seeing a 4.1% implied likelihood of a 50-basis point reduction in five weeks. The 2-yr note continued building on its starting gain in early action while longer tenors resisted at first, but eventually also climbed to fresh highs in the late morning. The afternoon saw some light backtracking from highs, but the entire complex stayed above today's opening levels into the close. Today's session was free of top-tier data releases but tomorrow will bring July PPI (Briefing.com consensus 0.2%; prior 0.0%) and weekly Initial Claims (Briefing.com consensus 228,000). Crude oil hit its lowest level since early June while the U.S. Dollar Index fell 0.3% to 97.84.
• Yield Check:
  • 2-yr: -4 bps to 3.69%
  • 3-yr: -5 bps to 3.66%
  • 5-yr: -5 bps to 3.77%
  • 10-yr: -6 bps to 4.24%
  • 30-yr: -6 bps to 4.83%

• News:
  • Treasury Secretary Bessent said during interviews with Fox Business and Bloomberg that the FOMC should consider a 50-basis point cut in September.
  • Atlanta Fed President (non-voter) Bostic said that the central bank can wait to make policy adjustments because the labor market remains strong.
  • Japan launched an anti-dumping probe into steel products from China and South Korea.
  • Chinese developer Evergrande will be delisted from the Hong Kong Stock Exchange on August 22.
  • Japan sold 5-yr JGBs to soft demand.
  • India's Prime Minister Modi is likely to speak with President Trump on the sidelines of the UN meeting in September.
  • Germany's economy minister said that domestic inflation is likely to remain stable for the remainder of the year.
  • The British government is looking to tighten rules surrounding inheritance transfers, aiming to generate about GBP1.5 bln in annual revenue by 2029.
  • China's July New Loans were down CNY50.0 bln (expected +CNY305.0 bln; last CNY2.240 trln). July Outstanding Loan Growth hit 6.9% yr/yr (expected 7.0%; last 7.1%) and July total social financing reached CNY1.16 trln (expected CNY1.50 trln; last CNY4.20 trln).
  • Japan's July PPI was up 0.2% m/m, as expected (last -0.1%), rising 2.6% yr/yr (expected 2.5%; last 2.9%). August Reuters Tankan Index rose to 9 from 7. July Machine Tool Orders were up 3.6% yr/yr (last -0.5%).
  • South Korea's July Unemployment Rate fell to 2.5% from 2.6%.
  • Australia's Q2 Wage Price Index was up 0.8% qtr/qtr, as expected (last 0.9%), rising 3.4% yr/yr (expected 3.3%; last 3.4%). June Home Loans were up 2.4% m/m (last -1.8%).
  • New Zealand's July Electronic Card Retail Sales rose 0.2% m/m (last 0.5%), increasing 1.7% yr/yr (last -0.3%).
  • Germany's July CPI was up 0.3% m/m, as expected (last 0.0%), rising 2.0% yr/yr, as expected (last 2.0%). July Wholesale Price Index was down 0.1% m/m (expected 0.2%; last 0.2%) but up 0.5% yr/yr (last 0.9%). 
  • Spain's July CPI was down 0.1% m/m, as expected (last 0.7%) but up 2.7% yr/yr, as expected (last 2.3%). July Core CPI was up 2.3% yr/yr, as expected (last 2.2%).
• Today's Data:
  • The weekly MBA Mortgage Index jumped 10.9% to follow last week's 3.1% increase. The Refinance Index jumped 23.0% while the Purchase Index was up 1.4%.
  • Weekly crude oil inventories increased by 3.04 million barrels after decreasing by 3.03 million barrels a week ago.
• Commodities:
  • WTI crude: -0.9% to $62.62/bbl
  • Gold: +0.3% to $3408.20/ozt
  • Copper: -0.4% to $4.50/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1698
  • GBP/USD: +0.5% to 1.3566
  • USD/CNH: UNCH at 7.1821
  • USD/JPY: -0.3% to 147.45
• The Day Ahead:
  • 8:30 ET: July PPI (Briefing.com consensus 0.2%; prior 0.0%), Core PPI (Briefing.com consensus 0.2%; prior 0.0%), weekly Initial Claims (Briefing.com consensus 228,000; prior 226,000), and Continuing Claims (prior 1.974 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +7 bcf)