Bond Market Update

Pullback Deepens

• U.S. Treasuries are on track for a lower start with shorter tenors expected to show relative weakness in the early going after outperforming yesterday. Treasury futures climbed during the Asian session, briefly revisiting yesterday's highs, before sliding to fresh lows during the past hour. Other sovereign debt has also retreated, though overall losses have been limited. The market received another big batch of end-of-month data, which showed slight contractions in China's Manufacturing (49.2; expected 50.1) and Non-Manufacturing (49.0; expected 50.0) PMIs while European data included a slight acceleration in the year-over-year CPI rate to 2.9% from 2.8% while Core CPI accelerated to 2.5% from 2.4%. Crude oil is climbing toward $85/bbl while the U.S. Dollar Index is up 0.4% at 100.29.
• Yield Check:
  • 2-yr: +4 bps to 4.27%
  • 3-yr: +4 bps to 4.32%
  • 5-yr: +3 bps to 4.41%
  • 10-yr: +3 bps to 4.69%
  • 30-yr: +1 bp to 5.22%

• News:
  • The Bank of Japan left its policy rate at 1.00%, as expected, noting that risks to prices remain skewed to the upside.
  • China is expected to accelerate government spending during the second half of the year.
  • Japan, South Korea, and the U.S. intervened in the foreign exchange market yesterday, helping the yen rise off this year's low against the dollar.
  • China's July Manufacturing PMI hit 49.2 (expected 50.1; last 50.3) and July Non-Manufacturing PMI hit 49.0 (expected 50.0; last 50.2).
  • Japan's July Tokyo CPI was up 2.0% yr/yr (last 1.7%) and Tokyo Core CPI was up 1.9% yr/yr (expected 1.8%; last 1.6%). June Retail Sales rose 0.5% yr/yr (expected 3.1%; last 5.0%) and June Industrial Production was up 1.3% m/m (expected 1.0%; last 0.1%). June Housing Starts rose 18.6% yr/yr (expected 12.7%; last 33.9%) and Construction Orders were up 2.3% yr/yr (last -6.7%).
  • South Korea's June Retail Sales rose 2.7% m/m (last 0.1%), June Industrial Production was up 6.4% m/m (expected 3.0%; last -2.9%), rising 5.8% yr/yr (expected 2.5%; last -1.1%). June Service Sector Output was up 0.7% m/m (last 1.0%).
  • Hong Kong's Q2 GDP contracted 0.6% qtr/qtr (expected -0.3%; last 2.9%) but was up 4.3% yr/yr (expected 4.8%; last 5.9%).
  • Australia's Q2 PPI was up 1.3% qtr/qtr (expected 0.5%; last 0.4%), rising 3.6% yr/yr (last 3.0%). June Private Sector Credit was up 0.8% m/m (expected 0.6%; last 0.7%) and June Housing Credit was up 0.6% m/m (last 0.6%).
  • Singapore's July Bank Lending reached SGD931.4 bln (last SGD917.7 bln). Q2 Unemployment Rate remained at 2.0% and Q2 Business Expectations fell to 12.00 from 17.00.
  • Eurozone's flash July CPI was up 2.8% m/m (last -0.1%), rising 2.9% yr/yr, as expected (last 2.8%). Flash July Core CPI was unchanged m/m (last 0.2%), rising 2.5% yr/yr (expected 2.4%; last 2.4%).
  • Germany's July Unemployment increased by 6,000 (expected 5,000; last -1,000) and Unemployment Rate rose to 6.4% from 6.3% (expected 6.3%).
  • U.K.'s July Nationwide HPI was up 0.1% m/m, as expected (last 0.0%), rising 1.8% yr/yr (expected 1.9%; last 2.2%).
  • France's flash July CPI was up 0.6% m/m (expected 0.3%; last -0.3%), rising 2.1% yr/yr (last 1.8%). June PPI was down 0.6% m/m (last -0.2%) but up 2.6% yr/yr (last 3.1%).
  • Italy's July Business Confidence rose to 89.6 from 88.6 (expected 88.9) and Consumer Confidence rose to 94.2 from 92.4 (expected 92.5). Flash July CPI was up 0.2% m/m (expected 0.3%; last 0.0%), rising 2.8% yr/yr, as expected (last 3.0%).
  • Spain's May Current Account surplus reached EUR1.84 bln (last EUR1.88 bln).
  • Swiss June Retail Sales rose 1.5% yr/yr (expected 3.1%; last 3.4%).
• Commodities:
  • WTI Crude: +1.6% to $84.91/bbl
  • Gold: -1.3% to $4108.90/ozt
  • Copper: UNCH at $6.477/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1488
  • GBP/USD: -0.3% to 1.3420 
  • USD/CNH: +0.1% to 6.7524
  • USD/JPY: +0.4% to 160.19
• Data out Today:
  • 8:30 ET: Q2 Employment Cost Index (Briefing.com consensus 0.8%; prior 0.9%)
  • 9:45 ET: July Chicago PMI (Briefing.com consensus 56.5; prior 56.7)
  • 10:00 ET: Final July University of Michigan Consumer Sentiment (Briefing.com consensus 54.4; prior 54.4)