Bond Market Update

Inching Higher Alongside Sliding Equities

• U.S. Treasuries edged higher on Wednesday with shorter tenors leading the advance alongside a poor showing from stocks. The trading day started in quiet fashion after a night that was light in terms of economic and news developments. A few central banks released their latest policy statements, but only Bank Indonesia surprised markets by announcing a 25-basis point cut against expectations for no change. The U.S. session did not feature any data, which left Treasuries near their starting levels in early trade. The sideways start gave way to a morning push to fresh highs alongside a poor open in equities. Treasuries held near their best levels as the day went on with longer tenors inching to fresh highs after the U.S. Treasury sold $16 bln in 20-yr bonds to ok demand, though foreign interest was on the light side once again. The gains were trimmed during the last 90 minutes of trade with the market slowly backtracking through the release of the FOMC Minutes from the July meeting, which showed a discussion about persistent inflation. Crude oil climbed off its lowest level since early June while the U.S. Dollar Index slipped 0.1% to 98.18.
• Yield Check:
  • 2-yr: -1 bp to 3.74%
  • 3-yr: -1 bp to 3.70%
  • 5-yr: -1 bp to 3.81%
  • 10-yr: -1 bp to 4.30%
  • 30-yr: UNCH at 4.90%

• News:
  • President Trump is considering firing Fed Governor Cook due to allegations of mortgage fraud, according to The Wall Street Journal.
  • 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%).
• Today's Data:
  • The weekly MBA Mortgage Index fell 1.4% to follow last week's 10.9% jump. The Refinance Index fell 3.2% while the Purchase Index ticked up 0.1%.
  • Weekly crude oil inventories decreased by 6.01 million barrels after increasing by 3.04 million barrels a week ago.
  • $16 bln 20-year Treasury bond auction results (prior 12-auction average):
    • High yield: 4.876% (4.688%).
    • Bid-to-cover: 2.54 (2.58).
    • Indirect bid: 60.6% (67.6%).
    • Direct bid: 26.5% (17.6%).
• Commodities:
  • WTI crude: +1.5% to $62.70/bbl
  • Gold: +0.9% to $3388.40/ozt
  • Copper: +0.5% to $4.44/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1654
  • GBP/USD: -0.3% to 1.3451
  • USD/CNH: -0.1% to 7.1810
  • USD/JPY: -0.2% to 147.27
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 222,000; prior 221,000), Continuing Claims (prior 1.956 mln), and August Philadelphia Fed Survey (Briefing.com consensus 9.0; prior 15.9)
  • 9:45 ET: Flash S&P Global U.S. Manufacturing PMI (prior 49.8) and flash S&P Global U.S. Services PMI (prior 55.7)
  • 10:00 ET: July Leading Indicators (Briefing.com consensus -0.1%; prior -0.3%) and July Existing Home Sales (Briefing.com consensus 3.92 mln; prior 3.93 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +56 bcf)