Bond Market Update

Long Bond Paces Friday Slide

• U.S. Treasuries retreated on Friday, producing losses for the week in 10s and 30s while the front end also faced some pressure today, but the 2-yr note still ended the week with a gain. Longer tenors underperformed from the start after a fairly quiet night in global markets, which featured some overall pressure on sovereign debt and a mixed showing from equities. The first few minutes of the session saw impulse buying after the Retail Sales report for July (-0.6%; Briefing.com consensus 0.2%) missed expectations by a sizable margin, but the brief post-data advance found resistance immediately and was followed by slow but steady selling into the afternoon. Shorter tenors could not avoid a lower finish, but they outperformed throughout the day with the post-data bid briefly pressuring the 2-yr yield to its lowest level since late June. The 2-yr yield settled a couple basis points below its 50-day moving average (4.195%) while the 30-yr yield stopped just shy of its high from July (5.281%), which will be a focal point next week. Crude oil extended this week's gain to $1.34/bbl while the U.S. Dollar Index fell 0.3% to 99.67, shedding 0.1% for the week.
• Yield Check:
  • 2-yr: +3 bps to 4.17% (-4 bps this week)
  • 3-yr: +4 bps to 4.25% (-2 bps this week)
  • 5-yr: +5 bps to 4.36% (UNCH this week)
  • 10-yr: +6 bps to 4.70% (+4 bps this week)
  • 30-yr: +5 bps to 5.27% (+6 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 4.3% from 5.8% in the previous estimate.
  • A former Japanese currency diplomat Furusawa said that the Bank of Japan plans another 50-75 basis points of rate hikes, adding that another U.S. intervention is possible if the yen returns to this year's low against the dollar.
  • Fitch expects to see modest growth in China's insurances sector for the remainder of the year amid some regulatory support.
  • Australia's Prime Minister Albanese said that he appealed to President Trump to exempt Australia from additional tariffs.
  • Reform U.K. leader Farage won a by election in Clacton, which was expected.
  • Russia's Foreign Minister Lavrov said that an immediate ceasefire in Ukraine is not realistic.
  • China's July New Loans were down CNY340.0 bln (expected -CNY50.0 bln; last CNY1.61 trln), July Total Social Financing reached CNY1.41 trln (expected CNY1.20 trln; last CNY3.36 trln).
  • Hong Kong's Q2 GDP contracted 0.6% qtr/qtr, as expected (last -0.6%) but was up 4.3% yr/yr, as expected (last 4.3%).
  • Australia's Q2 Home Loans were down 1.9% qtr/qtr (last -3.5%).
  • New Zealand's July Business PMI hit 54.3 (last 60.1).
  • India's July WPI Inflation was up 9.78% yr/yr (expected 9.95%; last 9.87%).
  • Eurozone's flash Q2 GDP expanded 0.4% qtr/qtr, as expected (last 0.0%), growing 1.0% yr/yr, as expected (last 0.5%). Q2 Employment increased by 0.1% qtr/qtr, as expected (last 0.1%), rising 0.5% yr/yr (expected 0.6%; last 0.5%). June trade surplus reached EUR8.6 bln (expected deficit of EUR2.2 bln; last deficit of EUR9.0 bln).
  • Germany's July WPI was up 0.2% m/m (expected -0.2%; last -0.7%), rising 5.3% yr/yr (last 4.9%).
  • France's July CPI was up 0.6% m/m, as expected (last -0.3%), rising 2.1% yr/yr, as expected (last 1.8%).
  • Swiss Q2 GDP expanded 1.5% qtr/qtr (last 0.7%).
• Today's Data:
  • Total retail sales declined 0.6% month-over-month in July (Briefing.com consensus: 0.2%) following a 0.2% increase in June. Excluding autos, retail sales declined 0.3% month-over-month (Briefing.com consensus: 0.2%) following a 0.2% decline in June.
    • The key takeaway from the report is that control retail sales dropped 0.4% month-over-month. This figure will feed into GDP forecasts, so there is apt to be some downward revisions to Q3 GDP forecasts.
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for August dropped to 51.0 (Briefing.com consensus: 54.5) from the final reading of 55.2 for July. In the same period a year ago, the index stood at 58.2.
    • The key takeaway from the report is that only 8% of all consumers surveyed expect their income growth to exceed inflation in the year ahead. That expectation could ultimately translate into lower discretionary spending activity.
  • Business Inventories were unchanged in June (Briefing.com consensus 0.1%) after increasing a revised 0.4% (from 0.3%) in May.
• Commodities:
  • WTI crude: +1.7% to $82.40/bbl
  • Gold: +0.4% to $4436.90/ozt
  • Copper: UNCH at $6.61/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1565
  • GBP/USD: +0.4% to 1.3533
  • USD/CNH: UNCH at 6.7443
  • USD/JPY: -0.1% to 159.38
• The Week Ahead:
  • Monday: August Empire State Manufacturing Index (Briefing.com consensus 11.0; prior 15.6) at 8:30 ET; August NAHB Housing Market Index (Briefing.com consensus 34; prior 34) at 10:00 ET; and June Net Long-Term TIC Flows (prior $232.7 bln) at 16:00 ET
  • Tuesday: July Housing Starts (Briefing.com consensus 1.360 mln; prior 1.427 mln), Building Permits (Briefing.com consensus 1.390 mln; prior 1.367 mln), July Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -0.6%), and Export Prices ex-agriculture (prior -0.7%) at 8:30 ET; July Industrial Production (Briefing.com consensus 0.3%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 76.3%; prior 76.1%) at 9:15 ET; and July Pending Home Sales (Briefing.com consensus 1.3%; prior -5.4%) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 3.6%) at 7:00 ET; weekly crude oil inventories (prior +17.4 mln) at 10:30 ET; and $ bln 20-yr Treasury bond auction results at 13:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 206,000; prior 209,000), Continuing Claims (prior 1.777 mln), and August Philadelphia Fed Survey (Briefing.com consensus 25.0; prior 41.4) at 8:30 ET; July Leading Economic Index (Briefing.com consensus -0.1%; prior -0.2%); and weekly natural gas inventories (prior +36 bcf) at 10:30 ET
  • Friday: Flash S&P Global U.S. Manufacturing PMI (prior 53.9) and flash S&P Global U.S. Services PMI (prior 54.6) at 9:45 ET