Bond Market Update

Monday Losses Recovered

• U.S. Treasuries climbed on Tuesday, reclaiming their modest losses from the start of the week. The trading day started on a slightly higher note after a quiet night in global markets. There was some focus on the aftermath of yesterday's visit to the White House by European leaders, but now there is building anticipation for a potential trilateral summit between leaders of the U.S., Russia, and Ukraine. Treasuries extended their opening gains after the release of a mixed Housing Starts (1.428 mln; Briefing.com consensus 1.311 mln) and Building Permits (1.354 mln; Briefing.com consensus 1.390 mln) report, defending their gains as the morning went on. The final couple hours of trade saw a push to fresh highs in longer tenors with the 30-yr yield returning to its 50-day moving average (4.891%) while the 2-yr note settled a bit below its morning high. Crude oil ended at its lowest level since late May while the U.S. Dollar Index ticked up 0.1% to 98.24, staying just above its 50-day moving average (98.07).
• Yield Check:
  • 2-yr: -2 bps to 3.75%
  • 3-yr: -3 bps to 3.71%
  • 5-yr: -3 bps to 3.82%
  • 10-yr: -4 bps to 4.30%
  • 30-yr: -4 bps to 4.90%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 2.3% from 2.5% in the previous estimate.
  • Standard & Poor's affirmed the U.S. AA+ rating with a Stable outlook.
  • The British government may implement a tax on home sales over GBP500,000 as it continues seeking new revenue.
  • The Reserve Bank of New Zealand is expected to announce a 25-basis point cut to 3.00% when it meets tonight.
  • South China Morning Post reported that Chinese state-owned computing companies have been told to source more than half of their chips from domestic suppliers.
  • Hong Kong's July Unemployment Rate rose to 3.7% from 3.5%.
  • Australia's August Westpac Consumer Sentiment was up 5.7% (last 0.6%).
  • New Zealand's Q2 Input PPI was up 0.6% qtr/qtr (expected 1.4%; last 2.9%) and Output PPI was up 0.6% qtr/qtr (expected 1.0%; last 2.1%).
  • Eurozone's June Current Account surplus reached EUR35.8 bln (expected surplus of EUR33.4 bln; last surplus of EUR32.3 bln).
• Today's Data:
  • Housing starts increased 5.2% month-over-month in July to a seasonally adjusted annual rate of 1.428 million units (Briefing.com consensus: 1.311 million), with single-unit starts up 2.8% and multi-unit starts up 9.9%. Building permits decreased 2.8% month-over-month to a seasonally adjusted annual rate of 1.354 million units (Briefing.com consensus: 1.390 million), with single-unit permits up 0.5% and multi-unit permits down 8.2%.
    • The key takeaway from the report is that there wasn't much strength in single-unit starts or permits, which is relatively disappointing in the context of a housing market that needs more affordable, single-family homes for sale. In fact, single-unit starts were down in all regions except the South (+13.2%).
• Commodities:
  • WTI crude: -1.6% to $61.77/bbl
  • Gold: -0.6% to $3358.90/ozt
  • Copper: -1.1% to $4.42/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1644
  • GBP/USD: -0.2% to 1.3482
  • USD/CNH: UNCH at 7.1879
  • USD/JPY: -0.2% to 147.52
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 10.9%)
  • 10:30 ET: Weekly crude oil inventories (prior +3.04 mln)
  • 14:00 ET: July FOMC Minutes
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results