Bond Market Update

Oil Rally Weighs

• U.S. Treasuries retreated to begin the week, lifting yields on the 5-yr note and longer tenors to one-week highs while the 2-yr yield reversed its decrease from Friday, staying just above its 50-day moving average (4.186%). Treasury futures and other sovereign debt began facing pressure in overnight trade alongside a rally in energy prices that lifted WTI crude back above $80/bbl after President Trump said that the U.S. will give time for Iran to face mounting economic pressures due to the inability to put together a lasting deal. Treasuries began adding to their starting losses during the initial minutes of action, continuing their retreat into the afternoon as oil climbed throughout the day, reclaiming its 50-day moving average (80.44). Precious metals also climbed, adding to their gains from last week with gold futures returning to levels from early June. The U.S. Dollar Index rose 0.3% to 99.80.
• Yield Check:
  • 2-yr: +3 bps to 4.24%
  • 3-yr: +3 bps to 4.30%
  • 5-yr: +4 bps to 4.41%
  • 10-yr: +4 bps to 4.70%
  • 30-yr: +3 bps to 5.24%

• News:
  • NEC Director Hassett said that he would be in favor of holding or cutting rates if he were a part of the FOMC.
  • The Bank of Japan's latest summary of opinions showed overall hawkishness in sentiment among policymakers.
  • Japanese investors sold the second-largest monthly amount of Australian bonds as rising JGB rates prompted repatriation of foreign investments.
  • The Reserve Bank of Australia will meet overnight but a rate hike is not expected at this time.
  • China's July CPI was down 0.1% m/m (expected 0.2%; last -0.3%) but up 0.5% yr/yr (expected 0.8%; last 1.0%). July PPI was up 3.5% yr/yr (expected 3.9%; last 4.1%).
  • Japan's June Current Account surplus reached JPY1.40 trln (expected surplus of JPY2.50 trln; last surplus of JPY3.06 trln). July Bank Lending was up 5.4% yr/yr (expected 5.7%; last 5.7%). July Economy Watchers Current Index rose to 45.7 from 44.0 (expected 44.6).
  • Eurozone's August Sentix Investor Confidence rose to 0.9 from -3.1 (expected -0.7).
• Commodities:
  • WTI crude: +5.1% to $82.17/bbl
  • Gold: +0.5% to $4420.30/ozt
  • Copper: +0.5% to $6.62/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1542
  • GBP/USD: +0.2% to 1.3508
  • USD/CNH: +0.1% to 6.7467
  • USD/JPY: +0.9% to 159.23
• The Day Ahead:
  • 6:00 ET: July NFIB Small Business Optimism Index (Briefing.com consensus 97.1; prior 97.4)
  • 10:00 ET: July Existing Home Sales (Briefing.com consensus 4.07 mln; prior 4.09 mln)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results