Bond Market Update

Lots of Data

• U.S. Treasuries had a soft overnight session that was driven by selling across the curve that was mirrored by losses in other sovereign bond markets. The losses for the Treasury market dissipated as the cash session progressed, aided by a faltering stock market, a retreat in oil prices despite more saber rattling by Iran, and some technical resistance as the 10-yr note yield challenged the 4.60% level. Today's economic data featured some solid retail sales for June (ex-gasoline), another low print for initial jobless claims, and a disappointing pending home sales number (-5.4%) for June. The market took these reports in stride, along with a comment from Dallas Fed President Logan (FOMC voter), who said she "currently believes modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals." The probability of a 25-basis point hike at the July FOMC meeting is just 10.2% versus 10.7% a day ago, according to the CME FedWatch Tool.
• Yield Check:
  • 2-yr: +3 bps to 4.16%
  • 3-yr: +2 bps to 4.20%
  • 5-yr: +2 bps to 4.28%
  • 10-yr: +2 bps to 4.57%
  • 30-yr: +2 bps to 5.10%

• News:
  • President Trump leaning towards expanding military operations in Iran that could include seizure of Iranian islands. WSJ
  • President Trump says Iran has allowed an American citizen, who was wrongfully detained in December of 2024, to leave the country, calling it a gesture of goodwill
  • Iran laying down a "red line" for the U.S., saying it will crush key targets in the Middle East if the U.S. follows through next week on bombing Iran's bridges and power plants
  • Dallas Fed President Logan's (FOMC voter) "currently believes modestly higher interest rates would better balance the outlook and risks for the FOMC’s dual mandate goals."
  • Kansas City Fed President Schmid (non-FOMC voter) says inflation has been above target for too long, according to Bloomberg
  • USTR imposes 25% tariffs on certain imports from Brazil
  • Bank of Korea implemented first rate hike in 3 1/2 years (+25 bps to 2.75%, as expected)
  • South Korea's Financial Services Commission announces that it is meeting emergently to discuss market volatility and will soon have an announcement with respect to single, leveraged ETFs
  • China's AI Conference begins Friday with a keynote address from President Xi
  • UK's May GDP 0.1% m/m (0.0% expected; prior -0.1%) and 1.3% yr/yr (1.4% expected; prior 1.1%); May Industrial Production -0.5% m/m (-0.1% expected; prior 0.2%); May Construction Output -0.8% m/m (-0.3% expected; prior -0.1%)
• Today's Data:
  • Total retail sales were up 0.2% month-over-month in June (Briefing.com consensus: 0.2%) following an upwardly revised 1.0% increase (from 0.9%) in May. Excluding autos, retail sales were down 0.2% month-over-month (Briefing.com consensus: 0.1%) following an upwardly revised 1.0% increase (from 0.8%) in May.
    • The key takeaway from the report is that the headline disappointments are misleading, as they were driven primarily by gasoline station sales (-5.3%). Excluding gasoline stations, retail sales were up a solid 0.7% in June on the heels of a 0.9% increase in May.
  • Initial jobless claims for the week ending July 11 decreased by 8,000 to 208,000 (Briefing.com consensus: 219,000). Continuing jobless claims for the week ending July 4 were down 16,000 to 1.805 million.
    • The key takeaway from the report is that initial jobless claims remain historically low and a signpost for a labor market that is still light overall on layoff activity.
  • The Philadelphia Fed Index surged to 41.4 in July (Briefing.com consensus: 11.0) from 10.3 in June. The dividing line between expansion and contraction for this report is 0.0, so the July reading marks a notable acceleration in manufacturing activity in July in the Philadelphia Fed region versus the prior month.
    • The key takeaway from the report is that its strength was concentrated in new orders, shipments, and employment conditions, all of which were pitted against a relatively tame bump in the prices paid index.
  • May Business Inventories (Actual 0.3%; Briefing.com consensus: 0.3%; prior revised to 0.6% from 0.5%)
  • July NAHB Housing Market Index (Actual 34; Briefing.com consensus: 37; prior revised to 36 from 35)
  • June Pending Home Sales (Actual -5.4%; Briefing.com consensus: 0.4%; prior revised to 3.5% from 3.8%)
• Commodities:
  • WTI crude: -0.8% to $78.98/bbl
  • Gold: -1.6% to $3992.30/ozt
  • Copper: -0.6% to $6.32/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1439
  • GBP/USD: -0.5% to 1.3472
  • USD/CNH: +0.1% to 6.7745
  • USD/JPY: +0.1% to 162.40
• The Day Ahead:
  • 08:30 ET: June Housing Starts (Briefing.com consensus: 1328K; prior 1177K) and Building Permits (Briefing.com consensus: 1403K; prior 1413K)
  • 08:30 ET: June Import Prices (prior 1.9%), Nonfuel Import Prices (prior 0.8%), Export Prices (prior 1.3%), and Export Prices ex-ag (prior 1.2%)
  • 09:15 ET: June Industrial Production (Briefing.com consensus: 0.3%; prior 0.1%) and Capacity Utilization (Briefing.com consensus: 76.2%; prior 76.2%)
  • 10:00 ET: Preliminary July Univ. of Michigan Consumer Sentiment Index (Briefing.com consensus: 50.7; prior 49.5)