Bond Market Update

Treasuries Dip While Investors Stargaze

• U.S. Treasuries ended the week on a modestly lower note with the long bond dipping from its June high, though the complex remained in positive territory for the week. The trading day started on a slightly lower note, followed by an early extension of the opening losses alongside a rise in the price of oil after an overnight dip below $83.50/bbl. However, the bounce in crude met resistance in mid-morning trade after the market received more reassurances that a deal with Iran is close to being signed. Crude oil returned to $85/bbl by the late morning while Treasuries climbed back to their starting levels at the same time. Midday trade was confined to a sideways range near today's opening levels with all eyes glued to the public debut of SpaceX (SPCX 165.73, +30.73, +22.76%), which saw spectacular interest with more than a quarter billion shares traded during the first couple hours on the market. Today's dip briefly lifted the 30-yr yield back above its 50-day moving average (4.977%), but the intraday bounce returned the 30-yr yield below that level, resulting in a finish at a one-week low. The long bond underperformed for the week, though this followed last week's show of relative strength. Crude oil lost more than $5/bbl for the week, recording its lowest pit close since mid-April, while the U.S. Dollar Index dipped 0.1% to 99.74, losing 0.3% for the week after briefly tagging a 10-week high yesterday.
• Yield Check:
  • 2-yr: +2 bps to 4.09% (-7 bps this week)
  • 3-yr: +1 bp to 4.13% (-8 bps this week)
  • 5-yr: +2 bps to 4.21% (-7 bps this week)
  • 10-yr: +2 bps to 4.49% (-5 bps this week)
  • 30-yr: +2 bps to 4.98% (-2 bps this week)

• News:
  • President Trump told Axios that a deal with Iran could be signed over the weekend or on Monday.
  • The Bank of Japan is expected to announce its next rate hike next week while the Reserve Bank of Australia is expected to announce a policy hold.
  • Bank of Korea Governor Shin said that interest rates need to be raised "before it is too late."
  • The market expects the European Central Bank to hold its policy steady in July unless there is a renewed rise in energy prices.
  • Germany's Economic Ministry noted that momentum in the domestic economy slowed notably in Q2.
  • China's May New Loans reached CNY520.0 bln (expected CNY450.0 bln; last -CNY10.0 bln), May Outstanding Loan grew 5.5% yr/yr, as expected (last 5.6%), and May total social financing reached CNY2.03 trln (expected CNY1.87 trln; last CNY620.0 bln).
  • Japan's April Industrial Production was up 0.5% m/m (expected 0.8%; last -0.4%) and Capacity Utilization was down 0.8% m/m (last -1.2%).
  • New Zealand's May Business PMI hit 49.9 (last 50.4).
  • Germany's final May CPI was down 0.2% m/m, as expected (last 0.6%) but up 2.6% yr/yr, as expected (last 2.9%).
  • U.K.'s April GDP contracted 0.1% m/m, as expected (last 0.3%) but was up 1.2% yr/yr (expected 1.3%; prior 1.2%).
  • France's final May CPI was up 0.1% m/m, as expected (last 1.0%), rising 2.4% yr/yr, as expected (last 2.2%).
  • Spain's May CPI was up 0.1% m/m, as expected (last 0.4%), rising 3.2% yr/yr, as expected (last 3.2%). May Core CPI was up 3.0% yr/yr (expected 2.9%; last 2.8%).
• Today's Data:
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for June increased to 48.9 (Briefing.com consensus: 46.2) from the final reading of 44.8 for May, which was an historic low. In the same period a year ago, the index stood at 60.7.
    • The key takeaway from the report is that the improved readings revolved around the early-month easing in gasoline prices, which was a relief factor felt by consumers across age, education, and political party. Still, there were reported concerns about higher inflation remaining stubborn.
• Commodities:
  • WTI crude: -3.3% to $84.88/bbl
  • Gold: +2.8% to $4239.20/ozt
  • Copper: +2.6% to $6.44/lb
• Currencies:
  • EUR/USD: UNCH at 1.1575
  • GBP/USD: UNCH at 1.3417
  • USD/CNH: UNCH at 6.7627 
  • USD/JPY: +0.2% to 160.22
• The Week Ahead:
  • Monday: June Empire State Manufacturing survey (Briefing.com consensus 12.5; prior 19.6) at 8:30 ET; May Industrial Production (Briefing.com consensus 0.2%; prior 0.7%) and Capacity Utilization (Briefing.com consensus 76.2%; prior 76.1%) at 9:15 ET; and June NAHB Housing Market Index (Briefing.com consensus 37; prior 37) at 10:00 ET
  • Tuesday: May Housing Starts (Briefing.com consensus 1.440 mln; prior 1.465 mln), Building Permits (Briefing.com consensus 1.410 mln; prior 1.442 mln), May Import Prices (prior 1.9%), Import Prices ex-oil (prior 0.8%), Export Prices (prior 3.3%), and Export Prices ex-agriculture (prior 3.4%) at 8:30 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 10.8%) at 7:00 ET; May Retail Sales (Briefing.com consensus 0.5%; prior 0.5%) and Retail Sales ex-auto (Briefing.com consensus 0.5%; prior 0.7%) at 8:30 ET; April Business Inventories (prior 1.5%) and May Pending Home Sales (Briefing.com consensus 0.9%; prior 1.4%) at 10:00 ET; weekly crude oil inventories (prior -7.23 mln) at 10:30 ET; and June FOMC Rate Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%)
  • Thursday: June Philadelphia Fed survey (Briefing.com consensus 10.0; prior -0.4), weekly Initial Claims (Briefing.com consensus 226,000; prior 229,000), and Continuing Claims (prior 1.795 mln) at 8:30 ET; weekly natural gas inventories (prior 108 bcf) at 10:30 ET; and April Net Long-Term TIC Flows (prior $81.3 bln) at 16:00 ET
  • Friday: Bond and equity markets closed for Juneteenth