Bond Market Update

Short End Climbs After FOMC Holds

• U.S. Treasuries had a mixed showing on Wednesday, as the 2-yr note recorded a slim gain while longer tenors retreated, pulling back from three days of consecutive gains. The final standing was a change from the opening dynamic, which saw relative weakness up front and outperformance in the 30-yr bond as the market awaited the FOMC Statement for July. An overnight jump in energy prices contributed to the lower start, with Treasuries widening their losses in mid-morning trade as oil continued climbing toward $85/bbl. The 14:00 ET release of the FOMC Statement, which did not call for any rate changes, but showed dissent from three policymakers, lifted the 2-yr note into positive territory while the long bond slid to a fresh session low. During his press conference, Fed Chairman Warsh repeated that the Fed will have no tolerance for inflation remaining above 2.0%, and said that he wants to see markets continue responding to changes in the economy rather than expectations for changes to policy. Crude oil reclaimed its 50-day moving average (83.29) while the U.S. Dollar Index fell 0.5% to 100.95.
• Yield Check:
  • 2-yr: -4 bps to 4.24%
  • 3-yr: -2 bps to 4.28%
  • 5-yr: -1 bp to 4.35%
  • 10-yr: +2 bps to 4.62%
  • 30-yr: +5 bps to 5.14%

• News:
  • An earthquake in Japan prompted multiple companies to close their facilities for inspections.
  • The Trump administration banned imports of new Chinese robots and power inverters.
  • European Central Bank policymaker Patsalides said that the outcome of the September policy meeting remains uncertain.
  • Australia's Q2 CPI was up 0.6% qtr/qtr (expected 0.7%; last 1.4%), rising 3.9% yr/yr (expected 4.1%; last 4.1%). June Monthly CPI Indicator was up 3.8% (expected 4.0%; last 4.0%).
  • Germany's June Import Price Index was down 0.7% m/m, as expected (last 0.7%) but up 6.1% yr/yr (expected 6.0%; last 6.8%).
  • U.K.'s June Mortgage Approvals reached 58,200 (expected 57,000; last 56,570), June Mortgage Lending reached GBP7.73 bln (expected GBP3.95 bln; last GBP3.27 bln), and June net lending to individuals reached GBP9.50 bln (expected GBP5.50 bln; last GBP4.60 bln).
  • Italy's May Industrial Sales were up 0.6% m/m (last -0.2%), rising 5.3% yr/yr (last 2.7%).
  • Swiss July ZEW Expectations rose to 10.0 from -25.0.
• Today's Data:
  • The weekly MBA Mortgage Index fell 6.4% after increasing 1.9% a week ago. The Refinance Index was down 9.9% while the Purchase Index was down 3.6%.
  • Weekly crude oil inventories decreased by 7.167 mln barrels after increasing by 2.01 mln barrels a week ago.
• Commodities:
  • WTI crude: +6.5% to $84.48/bbl
  • Gold: UNCH at $4036.90/ozt
  • Copper: -0.8% to $6.31/lb
• Currencies:
  • EUR/USD: +0.6% to 1.1453
  • GBP/USD: +0.6% to 1.3366
  • USD/CNH: -0.1% to 6.7601
  • USD/JPY: -0.4% to 163.24
• The Day Ahead:
  • 8:30 ET: Advance Q2 GDP (Briefing.com consensus 2.3%; prior 2.1%), advance Q2 GDP Deflator (Briefing.com consensus 3.7%; prior 3.6%), June Personal Income (Briefing.com consensus 0.3%; prior 0.7%), Personal Spending (Briefing.com consensus 0.4%; prior 0.7%), PCE Prices (Briefing.com consensus -0.1%; prior 0.4%), Core PCE Prices (Briefing.com consensus 0.2%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 203,000; prior 187,000), and Continuing Claims (prior 1.796 mln) 
  • 10:30 ET: Weekly natural gas inventories (prior +32 bcf)