Bond Market Update

Data Recon

• Total PPI was unchanged month-over-month in July (Briefing.com consensus: 0.1%) following an upwardly revised 0.1% decline (from -0.3%) in June. Core PPI, which excludes food and energy, increased 0.2% month-over-month (Briefing.com consensus: 0.3%) following an upwardly revised 0.4% increase (from 0.2%) in June. Total PPI was up 4.7% year-over-year, down from 5.5% in June. Core PPI was up 4.2% year-over-year versus 4.7% in June.
  • The key takeaway from the report is that, like the CPI, it was devoid of "new" inflation-baked surprises. Headline and core readings trended in the right direction of disinflation, which is an appeasement for today's trading dynamic, but of course the inflation rates themselves remain on the high side and need to come down much more to appease inflation hawks.
    • The index for final demand goods decreased 0.7%, paced by a 3.1% decline in prices for final demand energy.
    • The index for final demand services was up 0.2%, driven by a 0.6% increase for final demand services less trade, transportation, and warehousing.
    • The index for processed goods for intermediate demand fell 0.6%, with prices for processed energy goods down 3.1%.
    • The index for unprocessed goods for intermediate demand declined 1.8%, with the index for unprocessed energy materials dropping 7.4%.
• Following the PPI report, the probability of a 25-basis point rate hike at the September FOMC meeting has been reduced to 30.4% from 40.6% yesterday.
• Initial jobless claims for the week ending August 8 increased by 9,000 to 209,000 (Briefing.com consensus: 205,000). Continuing jobless claims for the week ending August 1 decreased by 22,000 to 1.777 million.
  • The key takeaway from the report is the 4-week moving average for initial claims running below 200,000 (currently 199,000), which is an historically low number consistent with a labor market that is light on layoff activity.
• Yield check:
  • 2-yr: -5 bps to 4.15%
  • 3-yr: -6 bps to 4.21%
  • 5-yr: -5 bps to 4.32%
  • 10-yr: -4 bps to 4.64%
  • 30-yr: -3 bps to 5.22%