Bond Market Update

Looking to Sustain Rally

• U.S. Treasuries are on track for a modestly higher start, looking for their fourth consecutive day of gains in all tenors and the fifth day of gains in 10s and 30s. Treasury futures climbed in early evening action, followed by a midnight pullback that moderated the evening rally. The futures market maintained a narrow range while other sovereign debt has also seen some buying. Equities, meanwhile, are on course for a mostly higher finish to the week, headlined by fresh record highs in Japan's Nikkei (+2.5%) and South Korea's Kospi (+3.6%). The market received a big batch of economic data from major global economies with Japan's Mat Tokyo CPI decelerating to 1.3% year-over-year from 1.5% despite higher energy prices. Crude oil has slipped below $87/bbl, deepening this week's pullback, while the U.S. Dollar Index is flat at 99.05.
• Yield Check:
  • 2-yr: -1 bp to 4.01%
  • 3-yr: -1 bp to 4.06%
  • 5-yr: -2 bps to 4.14%
  • 10-yr: -2 bps to 4.44%
  • 30-yr: -2 bps to 4.97%

• News:
  • Japan's Finance Minister Katayama warned that a currency intervention is possible at any time with the yen back near this year's low against the dollar in the 160 area. 
  • The People's Bank of China called on banks to increase lending amid ongoing weakness in credit issuance.
  • Bank of England Governor Bailey said that rate cuts should not be expected at this time and that policy has been tightened sufficiently.
  • U.K.'s Andy Burnham, who could become the next prime minister, said that there should be more state involvement in the economy.
  • Japan's May Tokyo CPI was up 1.4% yr/yr (last 1.5%) and Tokyo Core CPI was up 1.3% yr/yr (expected 1.5%; last 1.5%). April Industrial Production rose 0.8% m/m (expected -0.4%; last -0.4%), April Retail Sales rose 2.1% yr/yr (expected 1.4%; last 1.4%), April jobs/applications ratio remained at 1.18, as expected, and April Unemployment Rate fell to 2.5% from 2.7% (expected 2.7%). April Housing Starts jumped 11.4% yr/yr (expected 14.7%; last -29.3%) and Construction Orders were down 32.3% yr/yr (last -14.4%). May Household Confidence rose to 33.6 from 32.2 (expected 32.3).
  • South Korea's April Retail Sales fell 3.6% m/m (last 1.9%), April Industrial Production fell 0.7% m/m (expected 0.3%; last 0.6%), rising 1.5% yr/yr (expected 2.2%; last 3.9%). April Service Sector Output was down 1.0% m/m (last 1.5%).
  • Singapore's April Bank Lending reached SGD908.4 bln (last SGD902.3 bln).
  • Germany's May CPI was down 0.2% m/m (expected 0.1%; last 0.6%); rising 2.6% yr/yr (expected 2.9%; last 2.9%). May Unemployment decreased by 12,000 (expected 11,000; last 20,000) and May Unemployment Rate fell to 6.3% from 6.4% (expected 6.4%). April Import Price Index was up 1.2% m/m, as expected (last 3.6%), rising 5.3% yr/yr, as expected (last 2.3%).
  • France's Q1 GDP contracted 0.1% qtr/qtr (expected 0.0%; last 0.2%) but was up 0.9% yr/yr (expected 1.1%; last 1.3%). May CPI was up 0.1% m/m (expected 0.2%; last 1.0%), rising 2.4% yr/yr (expected 2.5%; last 2.2%). April Consumer Spending was down 0.5% m/m (expected -0.1%; last 0.9%). Q1 nonfarm payrolls were unchanged qtr/qtr (expected -0.1%; last -0.1%).
  • Italy's May CPI rose 0.4% m/m (expected 0.1%; last 1.1%), increasing 3.2% yr/yr, as expected (last 2.7%). Q1 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.3%), growing 0.8% yr/yr (expected 0.7%; last 0.8%). April Unemployment Rate dipped to 5.1% from 5.2% (expected 5.3%).
  • Spain's May CPI was up 0.1% m/m (expected 0.2%; last 0.4%), rising 3.2% yr/yr (expected 3.3%; last 3.2%). May Core CPI was up 2.9% yr/yr (last 2.8%). March Current Account surplus reached EUR4.61 bln (last surplus of EUR4.04 bln).
  • Swiss May KOF Leading Indicators rose to 98.0 from 97.8, as expected.
• Commodities: 
  • WTI Crude: -1.5% to $87.59/bbl
  • Gold: +0.7% to $4563.60/ozt
  • Copper: -0.5% to $6.392/lb
• Currencies:
  • EUR/USD: UNCH at 1.1646
  • GBP/USD: -0.1% to 1.3426
  • USD/CNH: -0.1% to 6.7644
  • USD/JPY: UNCH at 159.26
• Data out Today:
  • 8:30 ET: May advance International Trade in Goods (prior -$87.9 bln), advance Retail Inventories (prior 0.7%), and advance Wholesale Inventories (prior 1.4%)
  • 9:45 ET: May Chicago PMI (Briefing.com consensus 49.5; prior 49.2)