Bond Market Update

Investors Lick July Wounds

• U.S. Treasuries began August with a rally that lifted 10s and 30s off their lowest levels of the year. The higher finish resulted from a strong open, which was largely owed to a reversal in the price of oil thanks to renewed hopes for a more lasting peace agreement between the U.S. and Iran. There was also some improvement in equity sentiment that lifted the S&P 500 toward its record high from June despite another weak overnight showing from South Korea's Kospi (-5.1%). Treasuries dipped from their starting levels in early trade, but quickly nestled into a sideways range that remained in place until the close. Session lows were notched after the release of the ISM Manufacturing Index for July (55.6%; Briefing.com consensus 54.0%), which showed an acceleration in activity, but the market quickly returned to levels seen just before the report, hanging onto its gains into the close. Crude oil fell back below its 50-day moving average (82.03) while the U.S. Dollar Index briefly fell to a seven-week low before returning to little changed at 99.90.
• Yield Check:
  • 2-yr: -4 bps to 4.25%
  • 3-yr: -5 bps to 4.31%
  • 5-yr: -6 bps to 4.40%
  • 10-yr: -6 bps to 4.69%
  • 30-yr: -4 bps to 5.23%

• News:
  • The U.S. Treasury announced that it plans to borrow $739 bln in Q3, up $68 bln from the initial estimate. Borrowing in Q4 is expected to reach $628 bln.
  • The U.S. Treasury confirmed that it took part in a joint intervention in the foreign exchange market with Japan's Ministry of Finance and Treasury Secretary Bessent called for increasing the size of the facility that was used to conduct the operation.
  • Fed Chairman Warsh is considering reducing the number of FOMC policy meetings per year.
  • Chinese press reported that convertible bond sales in China could exceed CNY100 bln this year.
  • China's July RatingDog Manufacturing PMI hit 50.9 (expected 51.9; last 51.7).
  • Japan's July Manufacturing PMI hit 54.5 (expected 54.7; last 54.8).
  • South Korea's July trade surplus reached $30.23 bln (expected surplus of $29.59 bln; last surplus of $36.09 bln) as imports grew 26.5% yr/yr (expected 26.6%; last 30.0%) and exports jumped 62.8% yr/yr (expected 59.0%; last 70.7%). July Manufacturing PMI hit 53.1 (last 52.1).
  • Australia's July Manufacturing PMI hit 52.0 (expected 51.7; last 51.5). July MI Inflation Gauge was up 1.0% m/m (last -0.4%) and July ANZ Job Advertisements rose 2.0% m/m (last -0.2%).
  • New Zealand's June Building Consents were down 3.6% m/m (last -4.9%).
  • India's July Manufacturing PMI hit 53.5 (expected 53.9; last 54.2).
  • Eurozone's July Manufacturing PMI hit 51.9 (expected 52.0; last 52.0).
  • Germany's June Retail Sales were down 1.1% m/m (expected -0.4%; last 1.2%), falling 0.2% yr/yr (last -2.8%). July Manufacturing PMI hit 52.2, as expected (last 52.2).
  • U.K.'s July Manufacturing PMI hit 51.9 (expected 52.8; last 52.8).
  • France's July Manufacturing PMI hit 49.8 (expected 50.0; last 50.0).
  • Italy's Manufacturing PMI hit 51.3 (expected 52.5; last 52.2).
  • Swiss July CPI was down 0.1% m/m, as expected (last 0.0%) but up 0.4% yr/yr (last 0.5%). July Manufacturing PMI hit 53.2 (expected 54.5; last 54.3).
• Today's Data:
  • The ISM Manufacturing Index increased to 55.6% in July (Briefing.com consensus 54.0%) from 53.3% in June. The dividing line between expansion and contraction is 50.0%, so the July figure suggests manufacturing activity expanded in July from the prior month.
    • The key takeaway from the report is that manufacturing activity picked up steam in July, with the PMI logging its highest reading since May 2022.
  • Construction spending decreased 0.1% month-over-month in June (Briefing.com consensus: 0.3%) following a downwardly revised unchanged reading (from 0.1%) for May. On a year-over-year basis, construction spending was down 3.2%.
    • The key takeaway from the report is that the softness was driven entirely by residential spending.
  • The S&P Global U.S. Manufacturing PMI hit 53.9 in the final reading for July, up from 53.8 in the flash reading, and unchanged from June's final reading of 53.9.
• Commodities:
  • WTI crude: -5.0% to $80.36/bbl
  • Gold: -0.4% to $4090.00/ozt
  • Copper: +1.1% to $6.54/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1514
  • GBP/USD: -0.3% to 1.3434
  • USD/CNH: +0.1% to 6.7583
  • USD/JPY: -0.4% to 156.80
• The Day Ahead:
  • 8:30 ET: June Trade Balance (Briefing.com consensus -$73.0 bln; prior -$77.6 bln)
  • 10:00 ET: June Factory Orders (Briefing.com consensus 0.2%; prior -1.3%) and June job openings (prior 7.594 mln)