Bond Market Update

Front End Climbs Despite Weak Auction

• U.S. Treasuries ended Wednesday on a mostly higher note while the long bond could not avoid a slightly lower finish. The midweek session was generally quiet as the market did not receive any top-tier domestic data while the news flow from overseas was also on the light side. Australia's CPI for July (2.8% yr/yr; expected 2.3%) was much hotter than expected due to sharp increases in prices of housing, food, and alcohol/tobacco, which is likely to pressure rate cut hopes in the near-term. The trading day started with slim losses in the 3-yr note and longer tenors while the 2-yr note followed yesterday's outperformance with another stellar outing that sent its yield to a level not seen since the start of May. The 10-yr note and the long bond set session lows during the first couple hours of trade, before bouncing in late morning trade. The rebound continued into the late afternoon even though today's $70 bln 5-yr note offering met weak demand.
• Yield Check:
  • 2-yr: -6 bps to 3.62%
  • 3-yr: -3 bps to 3.59%
  • 5-yr: -4 bps to 3.71%
  • 10-yr: -2 bps to 4.24%
  • 30-yr: UNCH at 4.91%

• News:
  • Sinolink Securities is expected to raise the funding margin deposit ratio for new clients to 100% amid concerns that a bubble is forming in Chinese equities.
  • Hungary's central bank left its policy rate unchanged at 6.50%.
  • China's July Industrial Profit was down 1.7% YTD (last -1.8%).
  • South Korea's August Manufacturing BSI Index rose to 70 from 68.
  • Australia's July MI Leading Index was up 0.1% m/m (last 0.0%). July Monthly CPI Indicator rose to 2.8% yr/yr from 1.9% (expected 2.3%). Q2 Construction Work Done was up 3.0% qtr/qtr (expected 1.0%; last -0.3%).
  • Germany's September GfK Consumer Climate fell to -23.6 from -21.7 (expected -21.5).
  • U.K.'s August CBI Distributive Trades Survey rose to -32 from -34 (expected -26).
  • Swiss August ZEW Expectations fell to -53.8 from 2.4.
• Today's Data:
  • The weekly MBA Mortgage Index was down 0.5% after falling 1.4% a week ago. The Refinance Index was down 3.5% while the Purchase Index rose 2.2%.
  • Weekly crude oil inventories decreased by 2.39 mln barrels after decreasing by 6.01 mln barrels a week ago.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.724% (4.038%).
    • Bid-to-cover: 2.36 (2.39).
    • Indirect bid: 60.5% (69.0%).
    • Direct bid: 30.7% (19.3%).
• Commodities:
  • WTI crude: +1.4% to $64.14/bbl
  • Gold: +0.2% to $3448.50/ozt
  • Copper: -0.7% to $4.50/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1631
  • GBP/USD: +0.1% to 1.3496
  • USD/CNH: UNCH at 7.1514
  • USD/JPY: +0.1% to 147.45
• The Day Ahead:
  • 8:30 ET: Q2 GDP -- Second Estimate (Briefing.com consensus 3.0%; prior 3.0%), Q2 GDP Deflator -- Second Estimate (Briefing.com consensus 2.0%; prior 2.0%), weekly Initial Claims (Briefing.com consensus 236,000; prior 235,000), and Continuing Claims (prior 1.972 mln)
  • 10:00 ET: July Pending Home Sales (Briefing.com consensus 0.3%; prior -0.8%)
  • 10:30 ET: Weekly natural gas inventories (prior +13 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results