Bond Market Update

Pressure Persists as Iran Concerns Resurface

• U.S. Treasuries faced another round of selling on Wednesday, which drove yields on 5s and shorter tenors back to their highest settlement levels of the year while yields on 10s and 30s remained below their May highs. Treasuries recorded roughly half of their losses at the start of the cash session after an overnight jump in the price of oil back above the $70/bbl. WTI crude peaked just above $76/bbl after a resumption of hostilities in the Middle East. A cargo vessel was struck by Iran in the Strait of Hormuz overnight, prompting a response from U.S. forces, and an acknowledgement from President Trump that the ceasefire is over. President Trump also said that additional strikes are likely to occur tonight. Treasuries widened their starting losses during the first three hours of action, briefly lifting the 3-yr yield to a fresh 2026 high, while midday and early afternoon trade saw a rise off lows that kept yields on shorter tenors just below their highest settlement levels of the year. The U.S. Treasury followed yesterday's good 3-yr note offering with another solid 10-yr note reopening ahead of tomorrow's 30-yr bond reopening. Crude oil settled below $74/bbl while the U.S. Dollar Index spent the day near its flat line at 101.03.
• Yield Check:
  • 2-yr: +4 bps to 4.20%
  • 3-yr: +5 bps to 4.24%
  • 5-yr: +5 bps to 4.31%
  • 10-yr: +4 bps to 4.57%
  • 30-yr: +2 bps to 5.07%

• News:
  • Bank of Japan policymaker Asada dropped his opposition to rate hikes, strengthening the central bank's hawkish bias.
  • The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50%, as expected.
  • Marine Le Pen confirmed that she will run in next year's presidential election in France after an appeals court ruled that her 15-month office ban has been served.
  • Chinese officials are reportedly looking to restrict foreign access to the country's top AI models.
  • Japan's May Current Account surplus reached JPY3.06 trln (expected surplus of JPY3.19 trln; last surplus of JPY4.21 trln). June Bank Lending was up 5.7% yr/yr (expected 5.8%; last 5.7%). June Economy Watchers Current Index rose to 44.0 from 43.6 (expected 44.3).
  • South Korea's May Current Account surplus reached $38.61 bln (last surplus of $28.29 bln).
  • Australia's May Building Approvals were down 1.1% m/m, as expected (last -0.2%) but up 5.3% yr/yr, as expected (last 10.9%).
  • France's May Current Account deficit narrowed to EUR100 mln from a deficit of EUR600 mln.
• Today's Data:
  • The FOMC Minutes from the June meeting showed growing focus among policymakers on investment in AI infrastructure and the impact of AI-related price pressures.
  • Wholesale Inventories were up 0.1% in May (Briefing.com consensus 0.3%) after increasing a revised 0.7% (from 0.6%) in April.
  • The weekly MBA Mortgage Index was down 2.2% to follow last week's unchanged reading. The Purchase Index was down 0.6% while the Refinance Index fell 4.1%.
  • Consumer credit decreased by $200 mln in May (Briefing.com consensus $18.9 bln) after increasing by a revised $20.8 bln (from $20.7 bln) in April. Revolving credit decreased by $5.3 bln while nonrevolving credit increased by $5.1 bln.
  • Weekly crude oil inventories increased by 3.00 mln barrels after decreasing by 3.78 mln barrels a week ago.
  • $39 bln 10-year Treasury note reopening results (prior 12-auction average):
    • High yield: 4.580% (4.239%).
    • Bid-to-cover: 2.59 (2.49).
    • Indirect bid: 81.5% (69.4%).
    • Direct bid: 10.7% (20.3%).
• Commodities:
  • WTI crude: +4.3% to $73.53/bbl
  • Gold: -1.8% to $4083.40/ozt
  • Copper: -1.9% to $6.11/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1429
  • GBP/USD: +0.4% to 1.3406
  • USD/CNH: UNCH at 6.8042
  • USD/JPY: +0.2% to 162.45
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 220,000; prior 215,000) and Continuing Claims (prior 1.814 mln)
  • 10:00 ET: June Existing Home Sales (Briefing.com consensus 4.20 mln; prior 4.17 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +87 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results