Bond Market Update

Peace Hopes Extend Rebound

• U.S. Treasuries extended Monday's rebound from their July plunge, though even with today's steady buying, yields only made it back to their highs from May. Treasuries appeared on track for an early pullback from yesterday's advance, but Treasury futures bounced just ahead of the cash open amid reports about another effort to broker a U.S.-Iran peace deal that would improve the flow of traffic through the Strait of Hormuz. The news offered continued support through the day as crude oil fell back toward $75/bbl while improved sentiment in equities helped the S&P 500 rocket to a fresh record high. Treasuries reached their best levels shortly after noon, spending afternoon trade just below their highs. The rally pressured yields to two-week lows with the 2-yr yield pausing just above its 50-day moving average (4.171%). Crude oil settled just below its 200-day moving average (76.07) while the U.S. Dollar Index spent the day near its unchanged level at 99.87.
• Yield Check:
  • 2-yr: -5 bps to 4.20%
  • 3-yr: -6 bps to 4.25%
  • 5-yr: -7 bps to 4.33%
  • 10-yr: -6 bps to 4.63%
  • 30-yr: -4 bps to 5.19%

• News:
  • Westpac abandoned its forecast for two more rate hikes from the Reserve Bank of Australia due to softening inflation.
  • China Securities Times expects the domestic property market to continue recovering during the second half of 2026.
  • Japan's July Monetary Base was down 13.8% yr/yr (expected -13.0%; last -13.7%).
  • South Korea's July CPI was down 0.2% m/m (expected 0.1%; last 0.1%) but up 2.8% yr/yr (expected 3.0%; last 3.2%).
  • Hong Kong's June Retail Sales rose 4.6% yr/yr (last 7.9%).
  • Australia's July Commodity Prices fell 15.4% yr/yr (last 14.6%).
  • France's June government budget deficit reached EUR106.8 bln (last deficit of EUR93.3 bln).
  • Italy's June Retail Sales were down 0.1% m/m (expected 0.3%; last 0.2%) but up 3.1% yr/yr (last 2.2%).
• Today's Data:
  • The trade deficit narrowed to $73.3 billion in June (Briefing.com consensus: -$73.0 billion) from $77.6 billion in May. Both exports and imports declined month-over-month, but the narrowing deficit was the result of imports (-$7.3 billion) declining more than exports (-$2.9 billion).
    • The key takeaway from the report is that, while the real goods deficit narrowed to $94.5 billion in June from $99.8 billion in May, the Q2 average is still 18% greater than the Q1 average, so it will be factored as a drag on Q2 GDP.
  • Factory orders decreased 0.3% month-over-month in June (Briefing.com consensus: 0.2%) following an upwardly revised 1.1% decline (from -1.3%) in May. Excluding transportation, factory orders decreased 0.4% on the heels of a 2.0% increase in May. Shipments of manufactured goods fell 0.2% after increasing 1.6% in May.
    • The key takeaway from the report is rooted in the strong business investment activity, which shows up in the 1.2% increase in new orders for capital goods, excluding aircraft, that followed a 1.9% increase in May.
  • Job openings increased to 7.359 million in June from a revised 7.537 million in May (from 7.594 million).
• Commodities:
  • WTI crude: -5.8% to $75.73/bbl
  • Gold: +1.5% to $4151.90/ozt
  • Copper: +1.5% to $6.64/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1531
  • GBP/USD: +0.2% to 1.3451
  • USD/CNH: -0.1% to 6.7481
  • USD/JPY: +0.4% to 157.78
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -6.4%)
  • 8:15 ET: July ADP Employment Change (Briefing.com consensus 75,000; prior 98,000)
  • 9:45 ET: Final July S&P Global U.S. Services PMI (prior 53.6)
  • 10:00 ET: July ISM Non-Manufacturing Index (Briefing.com consensus 54.7%; prior 54.0%)
  • 10:30 ET: Weekly crude oil inventories (prior -7.17 mln)