Bond Market Update

Little Changed

• U.S. Treasuries are on track for a steady start after another quiet night in the futures market. Treasury futures faced some light pressure last night, but the slim losses were recovered over the past three hours. The market saw limited movement even though several central banks released their latest policy statements. Most directives went as expected, but Bank Indonesia unexpectedly lowered its policy rate by 25 basis points. The U.S. session will be free of market-moving data, but it will be interesting to see how well the market receives today's $16 bln 20-yr bond sale, since recent actions have seen soft demand from international buyers. Crude oil is bouncing back to $63/bbl while the U.S. Dollar Index is little changed at 98.29.
• Yield Check:
  • 2-yr: +1 bp to 3.76%
  • 3-yr: UNCH at 3.71%
  • 5-yr: UNCH at 3.82%
  • 10-yr: UNCH at 4.30%
  • 30-yr: UNCH at 4.90%

• News:
  • The Reserve Bank of New Zealand lowered its official cash rate by 25 basis points to 3.00%, but a couple policymakers were in favor of a larger cut. Acting Governor Hawkesby said that the Kiwi economy stalled in Q2.
  • Bank Indonesia unexpectedly lowered its policy rate by 25 basis points to 5.00%.
  • The People's Bank of China made no changes to its one-year and five-year loan prime rates, which was expected.
  • Central banks in Sweden and Iceland left their policy rates unchanged at 2.00% and 7.50%, respectively.
  • Japan's July trade deficit hit JPY300 bln (expected deficit of JPY70 bln; last deficit of JPY250 bln) as imports fell 7.5% yr/yr (expected -10.4%; last 0.3%) and exports dropped 2.6% yr/yr (expected -2.1%; last -0.5%). June Core Machinery Orders 3.0% m/m (expected -0.4%; last -0.6%); 7.6% yr/yr (expected 5.0%; last 4.4%)
  • Eurozone's July CPI was unchanged m/m, as expected (last 0.3%), rising 2.0% yr/yr, as expected (last 2.0%). July Core CPI was down 0.2% m/m, as expected (last 0.4%) but up 2.3% yr/yr, as expected (last 2.3%).
  • Germany's July PPI was down 0.1% m/m (expected 0.1%; last 0.1%), falling 1.5% yr/yr (expected -1.3%; last -1.3%).
  • U.K.'s July CPI was up 0.1% m/m (expected -0.1%; last 0.3%), rising 3.8% yr/yr (expected 3.7%; last 3.6%). July Core CPI was up 0.2% m/m (expected 0.1%; last 0.4%), rising 3.8% yr/yr (expected 3.7%; last 3.7%). July RPI was up 0.4% m/m (expected 0.1%; last 0.4%) and Core RPI was also up 0.4% m/m (last 0.4%). July House Price Index was up 3.7% yr/yr (expected 4.0%; last 3.9%).
• Commodities:
  • WTI Crude: +1.4% to $63.19/bbl
  • Gold: +0.4% to $3371.60/ozt 
  • Copper: -0.1% to $4.42/lb
• Currencies:
  • EUR/USD: UNCH at 1.1641
  • GBP/USD: -0.1% to 1.3474 
  • USD/CNH: -0.1% to 7.1810
  • USD/JPY: UNCH at 147.54
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -1.4%; 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