Bond Market Update

Streak Preserved

• U.S. Treasuries inched higher on Wednesday, securing their third consecutive advance that pressured yields on longer tenors to one-week lows. The midweek session saw limited movement after a night of restrained action in other sovereign debt. The market received July Services PMI readings from major economies with the eurozone's Services PMI (52.0; prior 50.0) accelerating to reflect a modest expansion in activity while China's July RatingDog Services PMI (50.4; expected 53.7; last 54.1) unexpectedly slowed to a near-standstill. Treasuries followed their modestly higher start with an immediate pullback, but that reversal lost steam shortly after 10s and shorter tenors turned negative during the opening hour of trade. The rest of the session saw a sideways drift, followed by a late return to highs in longer tenors and a push to a fresh high in the 2-yr note. The market defended its positive standing with some help from crude oil, which remained below its 200-day moving average (76.16), settling at a three-week low. Precious metals made some notable moves with gold reaching a seven-week high and silver climbing to a one-month high, extending their bounce off July lows. The U.S. Dollar Index dipped 0.2% to 99.65, ending at a seven-week low.
• Yield Check:
  • 2-yr: -2 bps to 4.18%
  • 3-yr: -1 bp to 4.24%
  • 5-yr: -1 bp to 4.32%
  • 10-yr: -1 bp to 4.62%
  • 30-yr: -2 bps to 5.17%

• News:
  • The Reserve Bank of India left its policy rate at 5.25%, as expected, noting that core inflation remains benign.
  • The U.K. is planning to provide about GBP9 bln in infrastructure support for housing and businesses.
  • Italy's Economy Minister Giorgetti said that his country will use extra deficit allowances for energy and defense spending.
  • China's July RatingDog Services PMI hit 50.4 (expected 53.7; last 54.1).
  • Japan's June Overall Wage Income was up 3.4% yr/yr, as expected (last 3.3%) and Overtime Pay rose 2.8% yr/yr (last 2.8%). July Services PMI hit 51.2 (expected 51.9; last 52.2).
  • Hong Kong's July Manufacturing PMI hit 51.0 (last 52.0).
  • Australia's July AIG Manufacturing Index hit -19.6 (last -16.8) and AIG Construction Index hit -40.6 (last -38.1). July Services PMI hit 53.6 (expected 53.0; last 50.5).
  • New Zealand's Q2 Labor Cost Index was up 0.7% qtr/qtr (expected 0.6%; last 0.5%), rising 2.1% yr/yr (last 2.0%). Q2 Employment increased by 0.5% qtr/qtr (expected 0.1%; last 0.2%), Q2 Unemployment Rate rose to 5.6% from 5.4% (expected 5.4%) and Participation Rate rose to 70.7% from 70.4%.
  • India's July Services PMI hit 53.3 (expected 53.1; last 57.4).
  • Singapore's June Retail Sales rose 1.0% m/m (last -2.2%), increasing 4.0% yr/yr (last 2.9%).
  • Eurozone's July Services PMI hit 52.0 (expected 51.9; last 50.0). July PPI was down 0.3% m/m (expected -0.2%; last 0.2%) but up 4.6% yr/yr, as expected (last 5.9%).
  • Germany's July Services PMI hit 49.8 (expected 49.6; last 48.6).
  • U.K.'s July Services PMI hit 52.1 (expected 51.8; last 48.8).
  • France's July Services PMI hit 49.6 (expected 49.8; last 46.8).
  • Italy's July Services PMI hit 52.5 (expected 51.0; last 50.2).
  • Spain's July Services PMI hit 53.8 (expected 54.9; last 54.2).
• Today's Data:
  • The ISM Services PMI edged up to 54.1% in July (Briefing.com consensus: 54.7%) from 54.0% in June. The dividing line between expansion and contraction is 50.0%, so the July reading reflects services sector activity growing at roughly the same pace as the prior month.
    • The key takeaway from the report is the understanding that services sector activity continues to run at a solid pace despite the persistence of ongoing cost pressures.
  • The ADP Employment Change report pointed to the addition of 44,000 nonfarm payrolls in July (Briefing.com consensus 75,000), down from 95,000 in June.
  • The S&P Global U.S. Services PMI hit 54.6 in the final reading for July, up from 53.6 in the flash reading and up from June's final reading of 51.2.
  • The weekly MBA Mortgage Index fell 2.9% to follow last week's 6.4% decrease. The Purchase Index was down 3.6% while the Refinance Index fell 1.9%.
  • Weekly crude oil inventories increased by 2.48 mln barrels after decreasing by 7.17 mln barrels a week ago.
• Commodities:
  • WTI crude: -0.7% to $75.18/bbl
  • Gold: +3.7% to $4305.00/ozt
  • Copper: +1.4% to $6.73/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1553
  • GBP/USD: +0.2% to 1.3469
  • USD/CNH: UNCH at 6.7468
  • USD/JPY: UNCH at 157.68
• The Day Ahead:
  • 8:30 ET: Preliminary Q2 Productivity (Briefing.com consensus 0.8%; prior 0.3%) and preliminary Q2 Unit Labor Costs (Briefing.com consensus 1.7%; prior 1.8%), weekly Initial Claims (Briefing.com consensus 200,000; prior 197,000), and Continuing Claims (prior 1.782 mln)
  • 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.3%; prior 0.3%)
  • 10:30 ET: Weekly natural gas inventories (prior +28 bcf)