Bond Market Update

Q2 Losses Widened

• U.S. Treasuries retreated on Tuesday, with yields finishing June and Q2 just above last week's lows. The Tuesday session started with modest losses that followed a busy night on the global economic front, though markets reacted calmly to the barrage of data. China's Manufacturing and Non-Manufacturing PMI readings for June reflected slight expansion, which was a touch better than expected. Elsewhere, flash June CPI readings from Germany, France, and Italy were cooler than expected, resulting in the deceleration of their respective year-over-year rates, though some European Central Bank officials have maintained a hawkish tone, foreshadowing additional hikes. Treasuries spent the initial hour of action in a sideways range, embarking on a slow retreat that continued into the afternoon while equities continued building on yesterday's gains. Despite today's selling, yields stayed within ten basis points of last week's lows, with yields on 10s and 30s ending the month lower. The front end underperformed in June and Q2 on expectations that rates will remain at a higher level for longer with a possible rate hike before the end of 2026. Crude oil lost nearly $18/bbl in June and more than $31/bbl in Q2 while the U.S. Dollar Index rose 0.1% to 101.17, gaining 2.3% in June and 1.3% in Q2.
• Yield Check:
  • 2-yr: +3 bps to 4.14% (+13 bps in June; +34 bps in Q2)
  • 3-yr: +3 bps to 4.14% (+8 bps in June; +32 bps in Q2)
  • 5-yr: +4 bps to 4.19% (+4 bps in June; +24 bps in Q2)
  • 10-yr: +4 bps to 4.42% (-3 bps in June; +11 bps in Q2)
  • 30-yr: +4 bps to 4.90% (-9 bps in June; +1 bp in Q2)

• News:
  • Cleveland Fed President (FOMC voter) Hammack said that the Fed may need to consider rate hikes since inflation is still too high.
  • China's electric vehicle exports for May were up 48% yr/yr.
  • European Central Bank President Lagarde said that the June rate hike was a deliberate, unanimous, move, while policymaker Wunsch said that another rate hike could be needed quickly.
  • Shipping giant Maersk raised its outlook for the year due to strong demand in the container shipping market.
  • Germany is looking for about EUR400 mln of spending cuts in the EU's EUR2 trln budget.
  • China's June Manufacturing PMI hit 50.3 (expected 50.1; last 50.0) and June Non-Manufacturing PMI hit 50.2 (expected 49.9; last 50.1).
  • Japan's May Industrial Production was up 0.5% m/m (expected 0.6%; last 0.5%), May jobs/applications ratio fell to 1.17 from 1.18 (expected 1.18), and May Unemployment Rate remained at 2.5%, as expected. May Housing Starts were up 33.9% yr/yr (expected 31.8%; last 11.4%) and Construction Orders were down 6.7% yr/yr (last -32.3%).
  • South Korea's May Retail Sales rose 0.1% m/m (last -3.5%), May Industrial Production was down 3.0% m/m (last -0.7%), falling 0.9% yr/yr (last 1.5%). May Service Sector Output was up 1.3% m/m (last -0.9%).
  • Australia's June ANZ Business Confidence rose to 36.6 from 10.0. May Private Sector Credit was up 0.7% m/m (expected 0.6%; last 0.7%) and May Housing Credit was up 0.5% m/m (lats 0.6%).
  • Germany's flash June CPI was down 0.3% m/m (expected 0.0%; last -0.2%), rising 2.3% yr/yr (expected 2.6%; last 2.6%). May Retail Sales were up 1.1% m/m (expected 0.0%; last -0.4%), rising 1.8% yr/yr (expected 0.0%; last -0.6%). May Import Price Index was up 0.7% m/m (expected 0.4%; last 1.2%), rising 6.8% yr/yr (last 5.3%).
  • U.K.'s Q1 GDP was up 0.6% qtr/qtr, as expected (last 0.1%), rising 0.9% yr/yr (expected 1.1%; last 0.9%). Q1 Business Investment was up 0.9% qtr/qtr (expected 0.7%; last -3.0%) but down 1.3% yr/yr (expected -1.8%; last 1.8%). Q1 Current Account deficit reached GBP22.1 bln (expected deficit of GBP22.2 bln; last deficit of GBP27.2 bln).
  • France's flash June CPI was down 0.2% m/m (expected 0.0%; last 0.1%) but up 1.8% yr/yr (expected 2.1%; last 2.4%). May PPI was up 3.0% yr/yr (last 2.3%). May Consumer Spending was up 0.5% m/m (expected 0.2%; last -0.5%).
  • Italy's flash June CPI was unchanged m/m (expected 0.2%; last 0.4%), rising 3.0% yr/yr (expected 3.1%; last 3.2%). May PPI was down 0.2% m/m (last 0.3%) but up 7.3% yr/yr (last 6.8%).
  • Spain's April Current Account surplus reached EUR1.88 bln (last surplus of EUR4.61 bln).
  • Swiss June KOF Leading Indicators rose to 101.2 from 98.6 (expected 99.0).
• Today's Data:
  • The Conference Board's Consumer Confidence Index increased to 91.2 in June (Briefing.com consensus 94.2) from a revised 90.6 (from 93.1) in May. In the same period a year ago, the index stood at 95.2.
    • The key takeaway from the report is that the June increase followed a downward revision to May's reading, so there is some persistent caution in confidence as the expectations index remains below a level that has traditionally signaled an upcoming recession.
  • The Chicago PMI hit 56.7 in June (Briefing.com consensus 60.0), down from 62.7 in May.
  • Job openings increased to 7.594 million in May from a revised 7.585 million (from 7.618 million) in April.
  • The FHFA Housing Price Index was down 0.1% in April (Briefing.com consensus 0.2%) after increasing a revised 0.2% (from 0.1%) in March.
  • The S&P Case Shiller Home Price Index was up 1.1% year-over-year in April (Briefing.com consensus 0.9%), up from a revised 0.9% (from 0.8%) in March.
• Commodities:
  • WTI crude: -1.8% to $69.52/bbl
  • Gold: UNCH at $4040.00/ozt
  • Copper: +1.5% to $6.25/lb
• Currencies:
  • EUR/USD: UNCH at 1.1421
  • GBP/USD: UNCH at 1.3254
  • USD/CNH: -0.1% to 6.7909
  • USD/JPY: +0.4% to 162.59
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 1.0%)
  • 8:15 ET: June ADP Employment Change (Briefing.com consensus 112,000; prior 122,000)
  • 9:45 ET: Final June S&P Global U.S. Manufacturing PMI (prior 55.7)
  • 10:00 ET: May Construction Spending (Briefing.com consensus 0.5%; prior 0.4%) and June ISM Manufacturing Index (Briefing.com consensus 53.8%; prior 54.0%)
  • 10:30 ET: Weekly crude oil inventories (prior -6.09 mln)