Bond Market Update

Shorter Tenors Recover Monday Losses

• U.S. Treasuries had a mixed showing on Tuesday, as the 10-yr note and shorter tenors recovered their losses from Monday while the long bond underperformed after finishing ahead during yesterday's session. Treasuries were mixed from the start after the night brought some more potential tariff-related developments. President Trump threatened to impose additional tariffs on exports from countries that have digital service taxes and warned that a 200% tariff on imports from China could be implemented if China does not accelerate exports of rare-earth magnets. More notably, President Trump officially fired Fed Governor Cook, who is the subject of a mortgage fraud investigation, but she refused to accept the firing, setting up a legal battle. The 10-yr note and the long bond widened their starting losses in morning trade but eventually joined the rally in shorter tenors. Today's economic data included a Durable Orders report for July (-2.8%; Briefing.com consensus -3.5%), which beat expectations, showing a solid increase in nondefense capital goods orders excluding aircraft, while August Consumer Confidence (97.4; Briefing.com consensus 96.3) was also better than expected even though it showed an increase in year-ahead inflation expectations to 6.2% from 5.7%. The Treasury complex reached highs shortly after today's $69 bln 2-yr note sale, which met solid demand, though foreign interest remained below average. Crude oil snapped a four-day streak while the U.S. Dollar Index fell 0.2% to 98.21.
• Yield Check:
  • 2-yr: -5 bps to 3.68%
  • 3-yr: -6 bps to 3.62%
  • 5-yr: -5 bps to 3.74%
  • 10-yr: -2 bps to 4.26%
  • 30-yr: +2 bps to 4.91%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 2.2% from 2.3% in the latest estimate.
  • South Korea's President Lee met with President Trump yesterday, confirming that South Korean companies will invest $150 bln into the U.S. as part of a trade deal.
  • President Trump threatened to impose a 200% tariff on imports from China if China does not accelerate exports of rare-earth magnets.
  • The latest policy minutes from the Reserve Bank of Australia showed an agreement that policy is still somewhat restrictive and that the pace of cuts will be determined by incoming data and the balance of global risks.
  • French Finance Minister Lombard cautioned that the IMF could intervene if Prime Minister Bayrou's minority government does not survive a confidence vote in two weeks.
  • Japan's July Corporate Services Price Index was up 2.9% yr/yr (expected 3.2%; last 3.2%). June BoJ Core CPI was up 2.0% yr/yr (expected 2.4%; last 2.3%).
  • South Korea's August Consumer Confidence fell to 111.4 from 143.0.
  • Singapore's July Industrial Production was up 8.2% m/m (expected 1.1%; last -0.8%).
  • Hong Kong's July trade deficit reached HKD34.1 bln (last deficit of HKD58.9 bln) as imports grew 16.5% m/m (last 11.1%) and exports rose 14.3% m/m (last 11.9%).
  • France's August Consumer Confidence dipped to 87 from 88 (expected 90).
• Today's Data:
  • Durable orders were down 2.8% month-over-month in July (Briefing.com consensus -3.5%) after a revised 9.4% drop (from -9.3%) in June. Excluding transportation, durable goods orders were up 1.1% month-over-month (Briefing.com consensus 0.1%) after increasing a revised 0.3% (from 0.2%) in June.
    • The key takeaway from the report is that nondefense capital goods orders excluding aircraft—a proxy for business investment—increased 1.1% in July after falling 0.6% in June, making this a generally positive report.
  • The Conference Board's Consumer Confidence Index fell to 97.4 in August (Briefing.com consensus 96.3) from an upwardly revised 98.7 (from 97.2) in July. In the same period a year ago, the index stood at 105.6.
    • The key takeaway from the report is that the August downtick was due to decreases in the Present Situation Index and the Expectations Index, though the overall confidence index has not changed much since the report for May.
  • The FHFA Housing Price Index was down 0.2% in July (Briefing.com consensus -0.1%) after falling a revised 0.1% (from -0.2%) in June.
  • The S&P Case-Shiller Home Price Index was up 2.1% year-over-year in July (Briefing.com consensus 2.8%), down from 2.8% in June.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.641% (3.996%).
    • Bid-to-cover: 2.69 (2.62).
    • Indirect bid: 57.1% (67.5%).
    • Direct bid: 33.2% (20.7%).
• Commodities:
  • WTI crude: -2.4% to $63.25/bbl
  • Gold: +0.5% to $3443.10/ozt
  • Copper: +1.1% to $4.53/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1643
  • GBP/USD: +0.2% to 1.3481
  • USD/CNH: UNCH at 7.1536
  • USD/JPY: -0.2% to 147.34
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -1.4%)
  • 10:30 ET: Weekly crude oil inventories (prior -6.01 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results