Bond Market Update

Waiting on CPI

• U.S. Treasuries caught a bid overnight, driven presumably by some optimism that the July CPI report will not only bring good inflation news but also the kind of news that will keep the Fed from raising interest rates at the September FOMC meeting. With such expectations, the current bias is subject to sudden change should the report disappoint when it is released at 8:30 a.m. ET. That report is the first order of trading business today, with the attention to oil prices taking a bit of a backseat since WTI crude prices, little changed at the moment, are not causing much of a stir. Once the dust settles from the CPI release, the Treasury market will gear up for the release of the $42 billion 10-yr note auction results at 1:00 p.m. ET. For benchmark purposes, the CME FedWatch Tool currently shows a 45.9% probability of a 25-basis point hike at the September FOMC meeting.
• Yield Check:
  • 2-yr: -3 bps to 4.19%
  • 3-yr: -2 bps to 4.26%
  • 5-yr: -3 bps to 4.36%
  • 10-yr: -2 bps to 4.66%
  • 30-yr: -3 bps to 5.21%

• News:
  • President Trump claimed the U.S. has control over the Strait of Hormuz and said that Iran would "get blown away" if they took any action. Bloomberg
  • Iran's President Masoud Pezeshkian held a meeting with Supreme Leader Mojtaba Khamenei. They discussed worsening living standards and unity in the country. Bloomberg
  • The U.S. economy was defined by a K-shaped gap for years. That divide is narrowing as lower income households catch up on consumer spending. Axios
  • Bank of Korea's Deputy Governor Sangdai said there will likely be more rate hikes due to persistent core inflation and strong economic growth.
  • Treasury permanently ends beneficial ownership reporting requirements for millions of small business owners.
  • MBA Mortgage Applications Index 3.6% wk/wk, with refinance applications up 5% and purchase applications up 3%.
  • USD/JPY -0.1% to 159.08, with the yen weakening from a post-intervention high of 155.23 seen on August 3.
  • Germany's CPI held at 2.8% yr/yr with the final July report, while Italy's CPI ticked up slightly to 2.9% from the preliminary report of 2.8%, leaving them well ahead of the ECB's 2% inflation target.
• Commodities:
  • WTI crude: +0.2% to $83.35/bbl
  • Gold: +0.8% to $4474.40/ozt
  • Copper: +0.7% to $6.68/lb
• Currencies:
  • EUR/USD: flat at 1.1540
  • GBP/USD: +0.1% to 1.3521
  • USD/CNH: flat at 6.7450
  • USD/JPY: -0.1% to 159.08
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (Actual 3.6%; 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