Bond Market Update

Treasuries Drift Into Long Weekend

• U.S. Treasuries finished the holiday-shortened week on a mixed, but generally flat note, locking in losses for the week. Intraday action was confined to a narrow range even though the market received the monthly Employment Situation report, which usually invites increased attention. The June report was disappointing as nonfarm payroll growth (57,000; Briefing.com consensus 110,000) undershot expectations and there were sizable downward revisions to readings from May (to 129,000 from 172,000) and April (to 148,000 from 179,000). The Unemployment Rate unexpectedly dipped to 4.2% from 4.3%, but the labor force participation rate also decreased. The report prompted a quick rebound off starting lows, but 10s and 30s found resistance that kept them out of the green while the front end held onto its slim gains into the afternoon. Shorter tenors outperformed this week, even though the entire complex retreated, which widened the 2s10s spread by seven basis points to 35 bps. Crude oil ended the day and the week little changed just south of $70/bbl while the U.S. Dollar Index fell 0.5% for the day and the week to 100.87. Bond and equity markets will be closed tomorrow, returning for a full session on Monday. Happy Independence Day!
• Yield Check:
  • 2-yr: -2 bps to 4.14% (+5 bps this week)
  • 3-yr: -1 bp to 4.17% (+8 bps this week)
  • 5-yr: UNCH at 4.23% (+10 bps this week)
  • 10-yr: +1 bp to 4.49% (+12 bps this week)
  • 30-yr: +1 bp to 4.99% (+13 bps this week)

• News:
  • Japanese officials are reportedly considering a shift away from hinting at interventions before they take place.
  • Japan's Prime Minister Takaichi is visiting India, looking to form some reciprocal agreements on investment.
  • Japan's final tax revenue for the last fiscal year is expected to reach a six-year high.
  • Germany's Chancellor Merz said that a pension overhaul will be completed by the end of the year, adding that income tax cuts amounting to about EUR10 bln are in the cards.
  • Japan's June Monetary Base was down 13.7% yr/yr (expected -10.0%; last -12.2%).
  • South Korea's June CPI was up 0.1% m/m, as expected (last 0.5%), rising 3.2% yr/yr, as expected (last 3.1%).
  • Hong Kong's May Retail Sales rose 7.9% yr/yr (last 8.6%).
  • Australia's May trade deficit reached AUD3.018 bln (expected surplus of AUD2.190 bln; last surplus of AUD1.383 bln) as imports grew 2.6% m/m (last 0.2%) and exports fell 6.9% m/m (last 7.2%).
  • New Zealand's May Building Consents were down 4.0% m/m (last 11.1%).
  • Eurozone's May Unemployment Rate remained at 6.2% (expected 6.3%).
  • France's May government budget deficit reached EUR93.3 bln (last deficit of EUR69.6 bln).
  • Italy's May Unemployment Rate fell to 5.0% from 5.1% (expected 5.1%).
  • Spain's June Unemployment decreased by 28,700 (expected -40,800; last -36,300).
  • Swiss June CPI was unchanged m/m (expected 0.1%; last 0.2%), rising 0.5% yr/yr, as expected (last 0.6%).
• Today's Data:
  • June nonfarm payrolls increased by 57,000 (Briefing.com consensus: 110,000). The 3-month average for total nonfarm payrolls decreased to 111,000 from 164,000. May nonfarm payrolls revised to 129,000 from 172,000. April nonfarm payrolls revised to 148,000 from 179,000.
    • June private sector payrolls increased by 49,000 (Briefing.com consensus: 88,000). May private sector payrolls revised to 97,000 from 120,000. April private sector payrolls revised to 150,000 from 177,000.
    • June unemployment rate was 4.2% (Briefing.com consensus: 4.3%) versus 4.3% in May. Persons unemployed for 27 weeks or more accounted for 27.3% of the unemployed versus 27.5% in May. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.9% from 8.1% in May.
    • June average hourly earnings were up 0.3% (Briefing.com consensus: 0.3%) on the heels of a 0.3% increase in May. Over the last 12 months, average hourly earnings have risen 3.5% versus 3.4% for the 12 months ending in May.
    • The average workweek in June was 34.3 hours (Briefing.com consensus: 34.3) versus 34.3 hours in May. The manufacturing workweek was edged down to 40.3 hours. Factory overtime edged up to 3.2 hours.
    • The labor force participation rate decreased to 61.5% from 61.8% in May and the employment-population ratio decreased to 59.0% from 59.2% in May.
  • Initial jobless claims for the week ending June 27 declined by 1,000 to 215,000 (Briefing.com consensus: 220,000). Continuing jobless claims for the week ending June 20 increased by 2,000 to 1.814 million.
    • The key takeaway from the report is that the low level of initial jobless claims continues to reinforce the understanding that layoff activity remains quite low overall.
  • Factory orders declined 1.3% month-over-month in May (Briefing.com consensus: 1.5%) following an upwardly revised 5.3% increase (from 4.8%) in April. Excluding transportation, factory orders increased 1.9% on the heels of a 1.7% increase in April. Shipments of manufactured goods jumped 1.6% after increasing 1.3% in April.
    • The key takeaway from the report is that the headline weakness was a function of a large decline in volatile transportation equipment orders. Exclude that factor, and factory orders were quite solid in May.
  • Weekly natural gas inventories increased by 87 bcf after increasing by 76 bcf a week ago.
• Commodities:
  • WTI crude: UNCH at $68.68/bbl 
  • Gold: +1.1% to $4125.90/ozt
  • Copper: -0.2% to $6.17/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1434
  • GBP/USD: +0.6% to 1.3348
  • USD/CNH: -0.1% to 6.7877
  • USD/JPY: -0.9% to 161.06
• The Week Ahead:
  • Monday: Final June S&P Global U.S. Services PMI (prior 51.3) at 9:45 ET and June ISM Non-Manufacturing Index (Briefing.com consensus 54.2%; prior 54.5%) at 10:00 ET
  • Tuesday: May Trade Balance (Briefing.com consensus -$78.8 bln; prior -$55.9 bln) at 8:30 ET and 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 0.0%) at 7:00 ET; May Wholesale Inventories (Briefing.com consensus 0.3%; prior 0.6%) at 10:00 ET; weekly crude oil inventories (prior -3.78 mln) at 10:30 ET; 10-yr Treasury note reopening results at 13:00 ET; June FOMC Minutes at 14:00 ET; and May Consumer Credit (Briefing.com consensus $18.9 bln; prior $20.7 bln) at 15:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 220,000; prior 215,000) and Continuing Claims (prior 1.814 mln) at 8:30 ET; June Existing Home Sales (Briefing.com consensus 4.20 mln; prior 4.17 mln) at 10:00 ET; weekly natural gas inventories (prior +87 bcf) at 10:30 ET; and 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: Nothing of note