Bond Market Update

Steady Start After Long Weekend

• U.S. Treasuries began the week on a mixed, but largely quiet note, with the long bond recording its fourth consecutive loss while 5s and shorter tenors climbed for the second day in a row. The market returned from the three-day Independence Day weekend in steady fashion, keeping yields on the 10-yr note and the 30-yr bond near their respective 50-day moving averages. The trading day started with gains that were paced by the front end after a night that featured a mixed but largely subdued showing from global equity markets and weakness in Japanese debt ahead of tomorrow's 30-yr JGB auction. The overnight data slate included decent reports on Retail Sales and Factory Orders from the eurozone and Germany while the U.S. session featured the ISM Services PMI (54.0%; Briefing.com consensus 54.2%; prior 54.5%), which showed a deceleration in activity in the services sector. Meanwhile, the final reading of the S&P Global U.S. Services PMI (51.2) was down from the flash reading (51.3), but up from the final May reading (50.7). Treasuries held near their starting highs through the first 30 minutes of action before backpedaling as equities opened with renewed strength in chip stocks. The pullback quickly lifted yields on 10s and 30s back above their 50-day moving averages, but the pace of the selling slowed in mid-morning trade, resulting in a narrow range that remained in effect into the close. Crude oil stayed below $69/bbl while the U.S. Dollar Index showed some early strength before returning to its unchanged level at 108.86.
• Yield Check:
  • 2-yr: -2 bps to 4.12%
  • 3-yr: -2 bps to 4.15%
  • 5-yr: -2 bps to 4.21%
  • 10-yr: -1 bp to 4.48%
  • 30-yr: +1 bp to 4.99%

• News:
  • Fed Governor Waller (FOMC voter) said that he believes that forward guidance can be a helpful tool, but he understands that guidance can also impair policy transmission.
  • President Trump said that China's President Xi will visit the White House in late September.
  • South Korea launched 24-hour currency trading and South Korea's President Lee said that a committee to enhance chip competitiveness will begin operating in August.
  • China has begun cracking down on safety violations in mining and chemical production.
  • European Central Bank policymaker Moulin said that he is comfortable with the base scenario and that the balance of risks is in the right place.
  • Germany increased its borrowing estimate for 2027 by about EUR7 bln due to weak tax revenue.
  • Hong Kong's June Manufacturing PMI hit 52.0 (last 50.4).
  • Australia's June MI Inflation Gauge was down 0.4% m/m (last -0.3%). June ANZ Commodity Price Index was down 1.0% m/m (last 0.7%) and June ANZ Job Advertisements decreased 0.2% m/m (last 2.0%).
  • Singapore's May Retail Sales were down 2.3% m/m (last 0.4%) but up 3.0% yr/yr (last 5.4%).
  • Eurozone's May Retail Sales were up 0.2% m/m, as expected (last -0.3%), rising 1.6% yr/yr (expected 1.5%; last 0.9%). May PPI was up 0.2% m/m, as expected (last 0.7%), rising 5.9% yr/yr (expected 5.7%; last 5.0%). July Sentix Investor Confidence rose to -3.1 from -13.4 (expected -14.5; last -13.4).
  • Germany's May Factory Orders were up 1.9% m/m (expected 1.1%; last -3.2%).
  • U.K.'s June Construction PMI hit 38.4 (expected 40.1; last 38.2).
  • Swiss June Unemployment Rate rose to 3.1% from 3.0% (expected 3.0%).
• Today's Data:
  • The ISM Services PMI decreased to 54.0% in June (Briefing.com consensus: 54.2%) from 54.5% in May. The dividing line between expansion and contraction is 50.0%, so the June reading reflects services sector activity growing just a tad slower than the prior month.
    • The key takeaway from the report is that activity in the services sector is still running at a good pace despite ongoing price pressures. The June reading was 0.9 percentage points above the 12-month average of 53.1%.
  • The S&P Global U.S. Services PMI hit 51.2 in the final reading for June, down from 51.3 in the flash reading, but up from 50.7 in May.
• Commodities:
  • WTI crude: -0.2% to $68.55/bbl
  • Gold: +1.0% to $4167.50/ozt
  • Copper: +1.0% to $6.23/lb
• Currencies:
  • EUR/USD: UNCH at 1.1439
  • GBP/USD: +0.3% to 1.3391
  • USD/CNH: +0.2% to 6.7948
  • USD/JPY: +0.5% to 162.09
• The Day Ahead:
  • 8:30 ET: May Trade Balance (Briefing.com consensus -$78.8 bln; prior -$55.9 bln)
• Treasury Auctions:
  • 13:00 ET: 3-yr Treasury note auction results