Bond Market Update

Longer Tenors Defend Early Gains

• U.S. Treasuries finished the week with modest gains in the 5-yr note and longer tenors while the short end ended slightly lower after backtracking from early highs. The Friday session started with solid gains across the curve after overnight action saw continued volatility in global tech stocks as worries about cheaper AI models from China added to the growing list of recent concerns about the industry group. The higher start pressured yields on all tenors to fresh lows for the week, but Treasuries backtracked from their opening highs as equities recovered some of their starting losses. The pullback from highs was paced by the short end, but even with today's underperformance, shorter tenors still finished the week in positive territory while longer tenors recorded slimmer gains. Crude oil extended this week's gain to more than $10/bbl amid resumption of U.S.-Iran hostilities, while the U.S. Dollar Index spent the day in a narrow range near its unchanged level, shedding 0.2% for the week.
• Yield Check:
  • 2-yr: +1 bp to 4.17% (-4 bps this week)
  • 3-yr: UNCH at 4.20% (-4 bps this week)
  • 5-yr: -1 bp to 4.27% (-4 bps this week)
  • 10-yr: -3 bps to 4.54% (-3 bps this week)
  • 30-yr: -3 bps to 5.06% (-1 bp this week)

• News:
  • President Trump said last evening that China interfered with the 2020 election.
  • Korea Financial Services Commission banned the issuance of single-stock leveraged products.
  • Andy Burnham took leadership of the British Labour party today and is set to become prime minister on Monday. The IMF has reportedly warned Mr. Burnham that he has little room for increasing public spending.
  • Germany's Commerzbank is reportedly preparing its demands ahead of likely merger talks with UniCredit.
  • Hong Kong's June Unemployment Rate remained at 3.7%.
  • New Zealand's June FPI was up 0.6% m/m (last 1.0%).
  • Singapore's June trade surplus reached SGD13.817 bln (last surplus of SGD5.556 bln) as non-oil exports fell 8.9% (last 7.7%), rising 20.7% yr/yr (expected 30.2%; last 38.4%).
  • Eurozone's June CPI was down 0.1% m/m, as expected (last 0.1%) but up 2.8% yr/yr, as expected (last 3.2%). June Core CPI was up 0.2% m/m, as expected (last 0.2%), rising 2.4% yr/yr, as expected (last 2.6%). May Current Account surplus reached EUR25.1 bln (expected surplus of EUR18.1 bln; last surplus of EUR15.7 bln).
• Today's Data: 
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for July increased to 54.4 (Briefing.com consensus: 50.7) from the final reading of 49.5 for June. In the same period a year ago, the index stood at 61.7.
    • The key takeaway from the report was the correlation between lower gas prices and higher sentiment, the latter of which was pervasive across groups by age, wealth, income, and political party. Gas prices, though, have started to increase again with the military action between the U.S. and Iran, so it remains to be seen if this improved sentiment can be sustained.
  • Industrial production increased just 0.1% month-over-month in June (Briefing.com consensus: 0.3%) following an unrevised 0.1% increase in May. The capacity utilization rate was 76.1% (Briefing.com consensus: 76.2%), unchanged from a downwardly revised 76.1% (from 76.2%) in May. Total industrial production was up 1.1% year-over-year. The capacity utilization rate is 3.3 percentage points below its long-run average.
    • The key takeaway from the report is that there was no increase in manufacturing output, something that hasn't happened since January.
  • Housing starts increased 19.0% month-over-month in June to a seasonally adjusted annual rate of 1.427 million units (Briefing.com consensus: 1.328 million), paced by a 76% increase in multi-unit starts. Building permits--a leading indicator--declined 3.0% month-over-month to a seasonally adjusted annual rate of 1.367 million (Briefing.com consensus: 1.403 million), with single-unit permits down 2.4%.
    • The key takeaway from the report is that there wasn't any growth in single-unit starts or permits, which isn't a positive read for a housing market pinched by affordability issues.
  • Import prices were up 0.3% month-over-month in June and up 7.1% year-over-year. Excluding fuel, they were up 0.4% month-over-month and up 4.2% year-over-year. Export prices fell 0.6% month-over-month but were up 10.2% year-over-year. Excluding agricultural products, export prices were down 0.7% month-over-month and were up 10.6% year-over-year.
    • The key takeaway is that the outsized year-over-year increases for import and export prices goes to show that there is ample inflation still to contend with here and abroad.
• Commodities:
  • WTI crude: +3.4% to $81.67/bbl
  • Gold: +0.7% to $4018.70/ozt
  • Copper: -0.8% to $6.27/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1436
  • GBP/USD: -0.2% to 1.3453
  • USD/CNH: +0.1% to 6.7788
  • USD/JPY: +0.1% to 162.43
• The Week Ahead:
  • Monday: June Leading Index (Briefing.com consensus 0.1%; prior 0.1%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior -2.7%) at 7:00 ET; weekly crude oil inventories (prior -1.69 mln) at 10:30 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 214,000; prior 208,000) and Continuing Claims (prior 1.805 mln) at 8:30 ET; and weekly natural gas inventories (prior +41 bcf) at 10:30 ET
  • Friday: Flash July S&P Global U.S. Manufacturing PMI (prior 52.5) and flash July S&P Global U.S. Services PMI (prior 48.8) at 9:45 ET; and June New Home Sales (Briefing.com consensus 620,000; prior 580,000) at 10:00 ET