Bond Market Update

Inching Higher Ahead of CPI

• U.S. Treasuries recorded modest gains on Tuesday, inching higher ahead of the highly anticipated Wednesday morning release of July CPI (Briefing.com consensus 0.1%; prior -0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.0%), which the market will immediately use to update its expectations for a potential rate hike in September. The Tuesday session was quiet, starting with a subdued night in global markets, owed in part to a holiday closure in Japan and the looming CPI report at a time when investors see the potential for a September hike as a toss-up. Shorter tenors displayed early strength with the entire complex rising from starting levels during first 90 minutes of action. The rally found resistance near yesterday's starting levels, producing a sideways range that remained in effect into the close. The U.S. Treasury started this week's note and bond auction slate with a strong $58 bln 3-yr note offering, though Treasuries held at their pre-auction levels into the close. Today was light on news, but the New York Fed released its quarterly report on household debt and credit, showing a 0.1% decrease in household debt in Q2 to $18.8 trillion. There was no significant change in delinquency rates, continuing a two-year trend, but auto loan originations to consumers with FICO scores below 660 made up the largest share of all quarterly originations over the past 20 years, weakening the overall quality of the loan mix in Q2. Crude oil climbed above $83/bbl while the U.S. Dollar Index spent the day just above its unchanged level at 99.81.
• Yield Check:
  • 2-yr: -2 bps to 4.22%
  • 3-yr: -2 bps to 4.28%
  • 5-yr: -2 bps to 4.39%
  • 10-yr: -2 bps to 4.68%
  • 30-yr: -1 bp to 5.24%

• News:
  • The Reserve Bank of Australia left its official cash rate at 4.35%, as expected, and its inflation outlook was little changed from May.
  • South Korea's exports through the first ten days of August were up 45.3% yr/yr with chip exports jumping 155.4%.
  • New Zealand's Prime Minister Luxon is reportedly facing growing displeasure within his party.
  • Sweden's National Institute of Economic Research raised its growth forecast for 2026 to 2.4% from 2.2% and kept its 2027 forecast for 2.8% growth. 
  • Australia's July NAB Business Confidence remained at -6 and NAB Business Survey rose to 4 from 3.
  • Singapore's Q2 GDP expanded 1.4% qtr/qtr (expected 1.1%; last 1.2%), growing 5.9% yr/yr (expected 5.7%; last 6.3%). 
  • Italy's June trade surplus reached EUR4.232 bln (expected surplus of EUR4.74 bln; last surplus of EUR4.946 bln) and EU trade surplus reached EUR1.58 bln (last surplus of EUR1.00 bln).
• Today's Data:
  • Existing home sales decreased 1.7% month-over-month in July to a seasonally adjusted annual rate of 4.06 million (Briefing.com consensus: 4.07 million) from an upwardly revised 4.13 million (from 4.09 million) in June. Sales were up 0.7% on a year-over-year basis.
    • The key takeaway from the report is that mortgage rates above 6.00%, limited inventory, and elevated prices continue to work against stronger existing home sales activity.
  • The NFIB Small Business Optimism Index rose to 99.8 in July (Briefing.com consensus 97.1) from 97.4 in June.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.291% (3.731%).
    • Bid-to-cover: 2.71 (2.64).
    • Indirect bid: 64.2% (63.3%).
    • Direct bid: 24.0% (24.0%).
• Commodities:
  • WTI crude: +1.2% to $83.17/bbl
  • Gold: +0.5% to $4440.80/ozt
  • Copper: +0.2% to $6.63/lb
• Currencies:
  • EUR/USD: UNCH at 1.1541
  • GBP/USD: UNCH at 1.3504
  • USD/CNH: UNCH at 6.7457
  • USD/JPY: UNCH at 159.27
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.9%)
  • 8:30 ET: July CPI (Briefing.com consensus 0.1%; prior -0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.0%)
  • 10:30 ET: Weekly crude oil inventories (prior +2.48 mln)
  • 14:00 ET: July Treasury Budget (Briefing.com consensus -$300.0 bln; prior -$120.3 bln)
• Treasury Auctions:
  • $42 bln 10-yr Treasury note auction results at 13:00 ET