Bond Market Update

Long End Dips

• U.S. Treasuries had a mixed showing on Wednesday, as longer tenors retreated after outperforming on Tuesday while the short end climbed after lagging yesterday. The trading day started with relative weakness in 10s and 30s, but the entire complex navigated a sideways range in early trade. The 2-yr note continued its outperformance during a session that did not see the release of any top-tier data. The overall news flow was also on the light side. The market learned that Apple (AAPL) will increase its domestic investment by $100 bln and that India will see its tariff doubled. Treasuries faced some intraday pressure that persisted through the completion of a weak $42 bln 10-yr note offering, but the last 90 minutes of trade saw a push to fresh highs in the 5-yr note and shorter tenors while longer tenors finished near their starting levels. Crude oil made a failed run at its 50-day moving average (66.71), recording its lowest close since early June, while the U.S. Dollar Index fell 0.6% to 98.17, slipping back below its 50-day moving average (98.24).
• Yield Check:
  • 2-yr: -2 bps to 3.70%
  • 3-yr: -2 bps to 3.66%
  • 5-yr: UNCH at 3.76%
  • 10-yr: +2 bps to 4.22%
  • 30-yr: +4 bps to 4.81%

• News:
  • President Trump said during a CNBC interview that Scott Bessent withdrew his name from consideration for Fed Chair.
  • President Trump announced that India will face an extra 25% tariff.
  • 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 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.
  • 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%).
• Today's Data:
  • The weekly MBA Mortgage Index was up 3.1% after falling 3.8% a week ago. The Refinance Index rose 5.2% while the Purchase Index was up 1.5%.
  • Weekly crude oil inventories decreased by 3.03 mln barrels after increasing by 7.70 mln barrels a week ago.
  • $42 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.255% (4.304%).
    • Bid-to-cover: 2.35 (2.57).
    • Indirect bid: 64.2% (69.7%).
    • Direct bid: 19.6% (17.9%).
• Commodities:
  • WTI crude: -1.2% to $64.34/bbl
  • Gold: -0.1% to $3433.80/ozt
  • Copper: +0.7% to $4.42/lb
• Currencies:
  • EUR/USD: +0.8% to 1.1663
  • GBP/USD: +0.5% to 1.3363
  • USD/CNH: -0.1% to 7.1831
  • USD/JPY: -0.3% to 147.12
• The Day Ahead:
  • 8:30 ET: Preliminary Q2 Unit Labor Costs (Briefing.com consensus 1.5%; prior 6.6%), preliminary Q2 Productivity (Briefing.com consensus 2.2%; prior -1.5%), weekly Initial Claims (Briefing.com consensus 220,000; prior 218,000), and Continuing Claims (prior 1.946 mln)
  • 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.2%; prior -0.3%)
  • 10:30 ET: Weekly natural gas inventories (prior +48 bcf)
  • 15:00 ET: June Consumer Credit (Briefing.com consensus $8.6 bln; prior $5.1 bln)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results