Bond Market Update

Longer Tenors Struggle To Hold Midweek Gains

• U.S. Treasuries retreated on Thursday with the long bond giving back the bulk of its gain that was recorded after the U.S. Treasury announced an increase to its maximum buybacks of longer tenors. Treasuries faced pressure from the start after crude oil continued climbing overnight in reaction to a couple developments. News of a hijacked tanker in the Gulf of Aden provided a reminder about the ongoing shipping difficulties in the Middle East while President Trump's warning that Iran will face crushing economic pressure suggested that the conflict with Iran will continue for some time. Treasury Secretary Bessent appeared on CNBC today and said that he will deliver a press conference about the economic pressure campaign on Monday. Treasuries attempted to recover their starting losses in morning trade, but the bounce failed, leaving action near the day's starting levels into the close. Economic data released today had little overall impact. Initial claims (206,000; Briefing.com consensus 206,000) dipped toward the 200,000 mark while the Philadelphia Fed Survey showed another strong acceleration in manufacturing activity (47.4; Briefing.com consensus 25.0) in the Philly Fed region. Crude oil climbed above $88/bbl while the U.S. Dollar Index inched up 0.1% to 98.91.
• Yield Check:
  • 2-yr: +1 bp to 4.19%
  • 3-yr: +2 bps to 4.27%
  • 5-yr: +3 bps to 4.39%
  • 10-yr: +4 bps to 4.70%
  • 30-yr: +4 bps to 5.24%

• News:
  • Treasury Secretary Bessent said that buybacks of longer tenors could exceed the new $4 bln ceiling that was announced yesterday.
  • 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).
• Today's Data:
  • Initial jobless claims for the week ending August 15 decreased by 6,000 to 206,000 (Briefing.com consensus 206,000) from last week's revised total of 212,000 (revised from 209,000). Continuing jobless claims for the week ending August 8 increased by 18,000 to 1.799 million from last week's revised total of 1.781 million (from 1.777 million).
    • The key takeaway from the report is that even with the increase in four-week moving averages for initial and continuing claims, overall levels are not setting off alarm bells concerning increased layoff activity.
  • The Philadelphia Fed survey rose to 47.4 in August (Briefing.com consensus 25.0) from 41.4 in July.
  • Conference Board's Leading Economic Index was up 0.2% in July (Briefing.com consensus -0.1%) while the June reading was revised up to -0.1% from -0.2%.
  • Weekly natural gas inventories increased by 16 bcf after increasing by 36 bcf a week ago.
• Commodities:
  • WTI crude: +2.9% to $88.15/bbl
  • Gold: +0.5% to $4569.60/ozt
  • Copper: -0.5% to $6.47/lb
• Currencies:
  • EUR/USD: UNCH at 1.1673
  • GBP/USD: +0.1% to 1.3626
  • USD/CNH: UNCH at 6.7262
  • USD/JPY: +0.7% to 159.16
• The Day Ahead:
  • 9:45 ET: Flash S&P Global U.S. Manufacturing PMI (prior 53.9) and flash S&P Global U.S. Services PMI (prior 54.6)