Bond Market Update

2-Yr Yield Hits Fresh 2026 High

• U.S. Treasuries continued this week's retreat on Wednesday with yields on 2s, 3s, and 7s joining the 5-yr yield at fresh highs for the year, reflecting worries about more persistent inflation from the price of oil, which has risen steadily over the past three weeks. The Treasury futures market saw little overnight movement, but selling pressure built right at the cash start with the market backtracking into the late morning. Investors did not receive any data to influence today's action, but the ongoing rise in the price of oil to a six-week high weighed on Treasuries, sending yields on 2s, 3s, 5s, and 7s to levels last seen in February 2025. Treasuries finished the session just above their morning lows with longer tenors dipping back to those levels after the U.S. Treasury reopened $13 bln in 20-yr bonds to lukewarm demand. This left the 10-yr yield just three basis points shy of its high from May while the 30-yr yield settled five basis points below its May high. Crude oil climbed past its 50-day moving average (84.91) to a six-week high while the U.S. Dollar Index slipped 0.1% to 101.27.
• Yield Check:
  • 2-yr: +4 bps to 4.30%
  • 3-yr: +4 bps to 4.34%
  • 5-yr: +4 bps to 4.41%
  • 10-yr: +3 bps to 4.66%
  • 30-yr: +2 bps to 5.15%

• News:
  • Bank Indonesia left its policy rate at 5.75% against some expectations for a hike.
  • Japan is reportedly looking to relax lending rules for banks while also encouraging pension funds to invest in alternative assets.
  • Secretary of State Rubio met with China's Foreign Minister Yi in Manila.
  • British Prime Minister Burnham will seek to reduce taxes for hospitality businesses while also calling for fiscal restraint.
  • The French parliament banned the use of social media for children under 15.
  • Japan's June trade deficit reached JPY880 bln (expected deficit of JPY560 bln; last deficit of JPY220 bln) as imports grew 25.4% yr/yr (expected 21.0%; last 12.5%) and exports rose 19.3% yr/yr (expected 18.6%; last 16.8%).
  • South Korea's June PPI was unchanged m/m (last 1.0%), rising 8.6% yr/yr (last 8.6%).
  • Australia's June MI Leading Index was unchanged m/m (last -0.1%).
  • New Zealand's June Credit Card Spending was up 3.1% yr/yr (last 4.2%).
  • U.K.'s June CPI was up 0.1% m/m, as expected (last 0.2%), growing 2.6% yr/yr (expected 2.7%; last 2.8%). June Core CPI was up 0.3% m/m (last 0.3%), rising 2.6% yr/yr (expected 2.5%; last 2.6%). June Input PPI was down 2.0% m/m (expected -2.7%; last 0.6%) and Output PPI was unchanged m/m (expected -0.1%; last 0.3%). June House Price Index was up 2.7% (expected 3.2%; last 3.8%).
• Today's Data:
  • The weekly MBA Mortgage Index rose 1.9% to follow last week's 2.7% decrease. The Purchase Index was up 5.5% while the Refinance Index was down 2.4%.
  • Weekly crude oil inventories increased by 2.01 mln barrels after decreasing by 1.69 mln barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 5.163% (4.808%).
    • Bid-to-cover: 2.64 (2.65).
    • Indirect bid: 69.1% (64.7%).
    • Direct bid: 16.2% (24.8%).
• Commodities:
  • WTI crude: +2.2% to $86.85/bbl
  • Gold: +1.8% to $4151.60/ozt
  • Copper: -0.9% to $6.49/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1411
  • GBP/USD: UNCH at 1.3373
  • USD/CNH: +0.1% to 6.7750
  • USD/JPY: UNCH at 163.13
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 214,000; prior 208,000) and Continuing Claims (prior 1.805 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +41 bcf)