Bond Market Update

Monday Bounce Extended

• U.S. Treasuries had a solid outing on Tuesday, adding to their gains from the start of the week with some help from falling energy prices. The trading day started with gains across the curve after an early morning rally in Treasury futures, which was helped by an extension of yesterday's pullback in crude oil. Treasuries followed their higher start with a quick extension of their gains, followed by a second wave of buying after today's batch of economic data showed another weakening in Consumer Confidence for August (to 89.4 from 90.2; Briefing.com consensus 90.6) and below-consensus New Home Sales for July (607,000; Briefing.com consensus 620,000). The advance produced highs just before noon, followed by a sideways drift into the close. The U.S. Treasury kicked off this week's note auction slate with a good $69 bln 2-yr note offering ahead of tomorrow's $70 bln 5-yr note sale. Tomorrow's session will also bring a sizable data slate, featuring Personal Income/Outlays for July and the second estimate of Q2 GDP, though the market expects the growth estimate to remain at 1.5%. Crude oil fell to a one-week low, approaching the midpoint of its August range, while the U.S. Dollar Index slipped 0.1% to 98.92.
• Yield Check:
  • 2-yr: -4 bps to 4.20%
  • 3-yr: -4 bps to 4.26%
  • 5-yr: -6 bps to 4.35%
  • 10-yr: -7 bps to 4.64%
  • 30-yr: -6 bps to 5.17%

• News:
  • Canada announced that it will implement retaliatory tariffs on CAD27.6 bln worth of exports to the United States, effective September 8.
  • Japan is reportedly planning to exempt gains from non-core business sales from corporate tax if proceeds are reinvested in acquisitions.
  • Japan is not planning to release crude oil from its national reserve in September or October.
  • Japan's budget for FY27 assumes record interest costs.
  • In China, Chengdu's local government eased housing rules and lowered the minimum down payment ratio.
  • The Reserve Bank of Australia's latest policy minutes showed readiness to hike if upside risks materialize.
  • German Chancellor Merz said that his cabinet will consider ways to protect domestic industry.
  • British Prime Minister Burnham will reportedly not rule out a tax hike in the Autumn budget.
  • Japan's June BoJ Core CPI was up 2.3% yr/yr (last 2.6%). June Leading Index remained at 116.5 (expected 116.4) and Coincident Indicator was up 0.6% m/m (expected 0.3%; last -0.2%).
  • Hong Kong's July trade deficit reached HKD4.9 bln (last deficit of HKD52.0 bln) as imports grew 41.0% m/m (last 45.4) and exports jumped 50.7% m/m (last 53.4%).
  • South Korea's August Consumer Confidence fell to 104.5 from 106.8.
  • Germany's Q2 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.4%), growing 1.0% yr/yr (expected 0.9%; last 0.7%). August ifo Business Climate Index rose to 88.8 from 86.7 (expected 87.2). August Current Assessment rose to 88.5 from 86.5 (expected 87.0) and Business Expectations rose to 89.1 from 86.8 (expected 87.5).
  • France's August Consumer Confidence remained at 86 (expected 87).
  • Spain's July PPI was up 9.2% yr/yr (last 7.0%).
• Today's Data:
  • New home sales decreased 10.5% month-over-month in July to a seasonally adjusted annual rate of 607,000 (Briefing.com consensus 620,000) from a revised 678,000 (from 628,000) in June. On a year-over-year basis, new home sales were down 6.3%.
    • The key takeaway from the report is that changes in monthly sales varied greatly by region, but the overall pace of sales slowed. This increased the month's supply of new homes for sale, which could result in some pressure on prices.
  • The Conference Board's Consumer Confidence Index decreased to 89.4 in August (Briefing.com consensus 90.6) from a revised 90.2 (from 90.8) in July. In the same period a year ago, the index stood at 97.8.
    • The key takeaway from the report is that the overall decrease in sentiment was owed to another worsening in the Expectations Index, which was somewhat offset by a rebound in the Present Situation Index after three months of deterioration.
  • The S&P Case-Shiller Home Price Index was up 2.1% year-over-year in July (Briefing.com consensus 1.8%) after increasing 1.6% in June.
  • The FHFA Housing Price Index was unchanged in June after increasing 0.3% in May.
• Commodities:
  • WTI crude: -3.2% to $82.29/bbl
  • Gold: UNCH at $4694.20/ozt
  • Copper: +1.7% to $6.71/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1676
  • GBP/USD: +0.1% to 1.3646
  • USD/CNH: -0.1% to 6.7168
  • USD/JPY: +0.1% to 159.21
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -0.4%)
  • 8:30 ET: Q2 GDP -- second estimate (Briefing.com consensus 1.5%; prior 1.5%), Q2 GDP Deflator -- second estimate (Briefing.com consensus 6.3%; prior 6.3%), July Personal Income (Briefing.com consensus 0.2%; prior 0.2%), Personal Spending (Briefing.com consensus 0.2%; prior 0.3%), PCE Prices (Briefing.com consensus 0.1%; prior -0.1%), Core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), July Durable Orders (Briefing.com consensus 0.5%; prior 0.3%), and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior 0.6%)
  • 10:30 ET: Weekly crude oil inventories (prior +4.41 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results