Bond Market Update

Long Bond Paces Shallow Bounce

• U.S. Treasuries staged a modest rebound on Tuesday, but not before opening selling briefly lifted the 30-yr yield to a fresh high for the year (5.326%). Treasuries started the day in mostly flat fashion after a night that featured the release of improved sentiment surveys from Germany and the eurozone. However, the long bond lagged out of the gate, quickly setting a fresh 2026 high in the corresponding yield. The continuation of recent weakness in the 30-yr bond caught attention of the stock market, which pulled back from a record high with the Nasdaq leading to the downside while the S&P 500 held up better. The weak start in equities followed the release of some underwhelming housing data for July, and together, these developments helped Treasuries rise from their early lows. The long bond was at the forefront of the bounce, settling at a session high while shorter tenors finished near their midday highs. Crude oil inched toward $85/bbl as the market considered the implications of an overnight strike on a cargo ship in the Strait of Hormuz and President Trump's acknowledgement that another cease-fire is not being sought. The U.S. Dollar Index spent the day near its flat line at 99.64.
• Yield Check:
  • 2-yr: UNCH at 4.18%
  • 3-yr: -1 bp to 4.25%
  • 5-yr: -1 bp to 4.37%
  • 10-yr: -2 bps to 4.71%
  • 30-yr: -2 bps to 5.29%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 4.0% from 4.3% in the previous estimate.
  • China's National Bureau of Statistics expects CPI to continue increasing mildly in the second half.
  • There are growing concerns that China's consumer subsidies pulled past demand forward rather than create sustainable growth.
  • South Korea is reportedly discussing military cooperation with U.S. forces in the Middle East.
  • European Central Bank Chief Economist Lane said that inflation is expected to remain around 3.0% for the remainder of the year.
  • Australia's August Westpac Consumer Sentiment was up 6.0% (last 4.1%).
  • Eurozone's August ZEW Economic Sentiment rose to 31.4 from 23.4 (expected 25.9).
  • Germany's August ZEW Economic Sentiment rose to 34.2 from 26.3 (expected 30.1) and ZEW Current Conditions rose to -61.1 from -77.6 (expected -68.8).
  • U.K.'s June three-month Employment increased by 83,000 (last 147,000), June Average Earnings Index + Bonus was up 4.1% yr/yr (expected 4.0%; last 4.4%), June Unemployment Rate remained at 4.9% (expected 4.8%). July Claimant Count decreased by 11,000 (expected 16,500; last -6,400). Q1 Labor Productivity was up 0.5% (expected -0.5%; last -0.7%).
• Today's Data:
  • Housing starts declined 12.4% month-over-month in July to a seasonally adjusted annual rate of 1.239 million (Briefing.com consensus: 1.360 million). Single-unit starts were down in every region of the country. Building permits increased 5.0% month-over-month to a seasonally adjusted annual rate of 1.443 million (Briefing.com consensus: 1.390 million). The good news there is that permits for single units—a leading indicator—were up 2.5% month-over-month.
    • The key takeaway from the report, though, is the broad-based weakness in single-unit starts seen in July, which is a month that featured rising interest rates that increased the cost of financing.
  • Industrial production increased 0.2% month-over-month in July (Briefing.com consensus: 0.3%) following an upwardly revised 0.3% increase (from 0.1%) in June. The capacity utilization rate was 76.3% (Briefing.com consensus: 76.3%) versus an upwardly revised 76.2% (from 76.1%) in June. Total industrial production was up 1.1% year-over-year. The capacity utilization rate was 3.1 percentage points below its long-run average.
    • The key takeaway from the report is that gains were registered by all three major industry groups, led by a 0.5% increase in utilities that stemmed from hot weather increasing air-conditioning use.
  • Import Prices were down 0.4% in July after decreasing a revised 0.3% (from +0.3%) in June. Excluding oil, import prices were up 0.4% in July after increasing a revised 0.1% (from 0.3%) in June. Export Prices were down 1.3% in July after falling a revised 0.7% (from -0.6%) in June. Excluding agriculture, export prices were down 1.5% in July after decreasing 0.7% in June.
  • Pending Home Sales were down 2.3% month-over-month in July (Briefing.com consensus 1.3%) while the June decrease was revised to 4.8% from 5.4%.
• Commodities:
  • WTI crude: +0.5% to $84.88/bbl
  • Gold: -1.2% to $4420.80/ozt
  • Copper: -2.0% to $6.49/lb
• Currencies:
  • EUR/USD: UNCH at 1.1575
  • GBP/USD: -0.1% to 1.3533
  • USD/CNH: +0.1% to 6.7469
  • USD/JPY: +0.2% to 159.62
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 3.6%)
  • 10:30 ET: Weekly crude oil inventories (prior +17.4 mln)
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results