Bond Market Update

Short End Paces Tuesday Bounce

• U.S. Treasuries recorded modest gains on Tuesday, though intraday action turned into a sideways affair, leaving the complex near today's opening levels at the close. Treasuries started the day with gains across the curve and leadership up front after a night that featured a plunge in South Korea's Kospi (-10%), which is seen as a proxy for the AI trade. That weakness carried into other equity markets, including U.S. technology stocks, reflecting increased worries about the returns that these big entities will get from their recent investment spending frenzy. Treasuries built on their starting gains as the morning went on, but they found resistance shortly after the 10-yr note climbed past yesterday's opening level. Treasuries reached highs in the late morning, followed by some midday backtracking that returned action to the day's starting levels. The late pullback included the front end, even though the U.S. Treasury sold $69 bln in 2-yr notes to solid demand. Crude oil dipped below its 200-day moving average (73.90) for the first time since mid-February while the U.S. Dollar Index rose 0.4% to 101.41.
• Yield Check:
  • 2-yr: -4 bps to 4.19%
  • 3-yr: -4 bps to 4.21%
  • 5-yr: -3 bps to 4.26%
  • 10-yr: -2 bps to 4.49%
  • 30-yr: -1 bp to 4.94%

• News:
  • MSCI is expected to announce its decision about a potential downgrade to Indonesia's market status tomorrow.
  • European Central Bank Chief Economist Lane said that he expects energy prices to keep inflation firmly above target into the first half of next year.
  • German Chancellor Merz said that pension reforms will be implemented, including a higher retirement age and no early retirement option without reduction of benefits.
  • Japan's flash June Manufacturing PMI hit 54.9 (expected 54.5; last 54.5) and flash June Services PMI hit 51.8 (last 50.0). April BoJ Core CPI was up 2.7% yr/yr (last 2.8%).
  • South Korea's June Consumer Confidence hit 106.6 (last 106.1).
  • Australia's flash June Manufacturing PMI hit 51.2 (last 50.7) and flash June Services PMI hit 49.9 (last 48.7).
  • Hong Kong's May CPI was unchanged m/m (last -0.1%), rising 2.0% yr/yr (last 1.7%).
  • Singapore's May CPI was up 0.7% m/m (last -0.3%), rising 1.8% yr/yr (expected 2.0%; last 1.8%). Core CPI was up 1.4% yr/yr (expected 1.6%; last 1.4%).
  • India's flash June Manufacturing PMI hit 54.5 (last 55.0) and flash June Services PMI hit 57.3 (last 59.8).
  • Eurozone's flash June Manufacturing PMI hit 51.3 (expected 51.6; last 51.6) and flash Services PMI hit 48.9 (expected 48.6; last 47.7).
  • Germany's flash June Manufacturing PMI hit 50.0 (expected 50.3; last 50.1) and flash Services PMI hit 46.8 (expected 49.0; last 48.1).
  • U.K.'s flash June Manufacturing PMI hit 53.1 (expected 53.5; last 53.9) and flash Services PMI hit 48.7 (expected 50.1; last 49.3). June CBI Distributive Trends Orders fell to -45 from -41 (expected -33).
  • France's June Business Survey fell to 100 from 102 (expected 101). Flash June Manufacturing PMI hit 50.7 (expected 50.2; last 49.7) and flash Services PMI hit 47.4 (expected 45.9; last 44.3).
  • Spain's April trade deficit reached EUR5.20 bln (last deficit of EUR4.40 bln).
• Today's Data:
  • The S&P Global U.S. Manufacturing PMI hit 55.7 in the flash reading for June, up from 55.1 in May.
  • The S&P Global U.S. Services PMI hit 51.3 in the flash reading for June, up from 50.7 in May.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.189% (3.704%).
    • Bid-to-cover: 2.64 (2.61).
    • Indirect bid: 55.5% (57.7%).
    • Direct bid: 34.3% (29.9%).
• Commodities:
  • WTI crude: -2.5% to $73.28/bbl
  • Gold: -1.3% to $4148.90/ozt
  • Copper: -3.5% to $6.15/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1382
  • GBP/USD: -0.4% to 1.3196
  • USD/CNH: +0.3% to 6.7951
  • USD/JPY: UNCH at 161.55
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -3.8%)
  • 8:30 ET: Q1 Current Account Balance (Briefing.com consensus -$237.5 bln; prior -$190.7 bln)
  • 10:00 ET: May New Home Sales (Briefing.com consensus 627,000; prior 622,000)
  • 10:30 ET: Weekly crude oil inventories (prior -8.26 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results