Bond Market Update

Pulling Back

• U.S. Treasuries are on track for a lower start with the long bond set to give back about half of its gain from yesterday at the cash open. Treasury futures inched higher in early evening action, holding near their best levels through the Asian session before embarking on a pullback that has continued into early morning trade. The retreat took place as WTI crude climbed past $88/bbl after it was reported that a tanker in the Gulf of Aden was hijacked and heading for Somalia. The news of continued shipping difficulties in the Middle East has weighed on sentiment while President Trump warned that Iran will face crushing economic pressure due to its unwillingness to accept a deal. The overnight news and data flow included the release of Germany's July PPI, which accelerated to 3.0% from 1.8%, while the U.S. session will see the release of 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. Crude oil has reached a four-week high while the U.S. Dollar Index is down 0.1% at 98.72.
• Yield Check:
  • 2-yr: +1 bp to 4.19%
  • 3-yr: +2 bps to 4.27%
  • 5-yr: +4 bps to 4.39%
  • 10-yr: +4 bps to 4.69%
  • 30-yr: +5 bps to 5.24%

• News:
  • The People's Bank of China left its one-year and five-year loan prime rates at their respective 3.00% and 3.50%. Bank Indonesia left its policy rate at 5.75%, as expected.
  • Nikkei reported that Japan may implement tax incentives for retail JGB investors.
  • Sweden's central bank left its policy rate at 1.75% but added that the rate is likely to be raised later in the year.
  • Japan's July trade deficit reached JPY634.5 bln (expected deficit of JPY680 bln; last deficit of JPY409.9 bln) as imports grew 27.8% yr/yr (expected 26.5%; last 25.4%) and exports rose 23.2% yr/yr (expected 19.9%; last 19.3%).
  • Hong Kong's July CPI was up 0.2% m/m (last 0.0%), rising 1.7% yr/yr, as expected (last 2.0%). July Unemployment Rate remained at 3.7%.
  • Australia's August MI Inflation Expectations rose to 4.9% from 4.7%. July employment decreased by 15,800 (expected 11,700; last 80,200) while full employment increased by 16,300 (last 48,900). July Unemployment Rate rose to 4.5% from 4.4% (expected 4.4%) and Participation Rate dipped to 66.9% from 67.0%, as expected.
  • Eurozone's June Construction Output was down 1.34% m/m (last 0.19%).
  • Germany's July PPI was up 1.1% m/m (expected 0.5%; last -0.3%), rising 3.0% yr/yr (expected 2.7%; last 1.8%).
  • U.K.'s August CBI Industrial Trends Orders rose to -25 from -45 (expected -40).
  • Swiss July trade surplus reached CHF8.73 bln (last surplus of CHF5.049 bln).
• Commodities:
  • WTI Crude: +3.3% to $88.63/bbl
  • Gold: -0.1% to $4540.10/ozt
  • Copper: -0.9% to $6.433/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1687
  • GBP/USD: +0.2% to 1.3631
  • USD/CNH: -0.1% to 6.7249
  • USD/JPY: +0.4% to 158.67
• Data out Today:
  • 8:30 ET: 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)
  • 10:30 ET: Weekly natural gas inventories (prior +36 bcf)