Bond Market Update

Long End Lags

• U.S. Treasuries are on track for a lower start with the long end expected to show early relative weakness after outperforming yesterday. Treasury futures spent the night in a steady retreat that started in early evening action, and continued into the night. Global equity markets have had a generally positive showing amid a light flow of news. Japan reported weak wage growth for June while Germany's Factory Orders (-1.0%; expected 1.2%) showed an unexpected decrease in June. The U.S. session will not feature any top-tier data, though the U.S. Treasury will follow yesterday's weak 3-yr note sale with a $42 bln 10-yr note offering at 13:00 ET. Crude oil is recovering some of its recent losses while the U.S. Dollar Index is down 0.3% at 98.52.
• Yield Check:
  • 2-yr: +1 bp to 3.73%
  • 3-yr: +1 bp to 3.69%
  • 5-yr: +3 bps to 3.79%
  • 10-yr: +3 bps to 4.23%
  • 30-yr: +3 bps to 4.80%

• News:
  • President Trump is scheduled to make an announcement from the White House at 16:30 ET.
  • Japan's cabinet office is expected to lower its domestic growth forecast for the fiscal year.
  • Bank of Korea Governor Rhee will not attend the Fed's Jackson Hole Economic Symposium later this month.
  • Times shadow Monetary Policy Committee voted in favor of a 25-basis point cut from the Bank of England on Thursday.
  • European Central Bank policymaker Holzmann said that there is no reason for another rate cut from the ECB.
  • Germany's government is reportedly preparing a EUR100 bln fund to invest in strategic sectors like defense, energy, and critical materials.
  • Japan's June Average Cash Earnings rose 2.5% yr/yr (expected 3.2%; last 1.4%).
  • Australia's July AIG Construction Index rose to -1.3 from -14.9 and AIG Manufacturing Index rose to -23.9 from -29.3.
  • New Zealand's Q2 employment decreased by 0.1% qtr/qtr, as expected (last 0.1%). Q2 Labor Cost Index was up 0.6% qtr/qtr (expected 0.5%; last 0.4%), rising 2.2% yr/yr (expected 2.3%; last 2.5%). Q2 Participation Rate fell to 70.5% from 70.8% (expected 70.7%) and Q2 Unemployment Rate rose to 5.2% from 5.1% (expected 5.3%).
  • Eurozone's June Retail Sales were up 0.3% m/m (expected 0.4%; last -0.3%), rising 3.1% yr/yr (expected 2.6%; last 1.9%).
  • Germany's June Factory Orders were down 1.0% m/m (expected 1.2%; last -0.8%).
  • France's Q2 Nonfarm Payrolls were unchanged qtr/qtr (expected 0.1%: last -0.1%).
  • Italy's June Industrial Production was up 0.2% m/m (expected -0.1%; last -0.8%) but down 0.9% yr/yr (last -1.0%).
• Commodities:
  • WTI Crude: +1.6% to $66.17/bbl
  • Gold: -0.4% to $3420.30/ozt
  • Copper: +0.8% to $4.419/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1604
  • GBP/USD: +0.2% to 1.3319
  • USD/CNH: UNCH at 7.1897
  • USD/JPY: UNCH at 147.51
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 3.1%; prior -3.8%)
  • 10:30 ET: Weekly crude oil inventories (prior +7.70 mln)
• Treasury Auctions:
  • 13:00 ET: $42 bln 10-yr Treasury note auction results