Bond Market Update

Front End Behind

• U.S. Treasuries trade in the red, though the first 90 minutes of action have seen some divergence with resilience in the long bond lifting it to a session high while the front end remains pinned to lows after a morning report from FT that Fed Chairman Warsh is open to a rate hike if there is no improvement in the inflation picture. Today's release of the report on preliminary productivity (1.4%; Briefing.com consensus 0.8%) and unit labor costs (1.3%; Briefing.com consensus 1.7%) for Q2 showed productivity growth outpacing cost growth at a slight margin, so it had little impact on the overall picture. Inflation will again be the focus on Wednesday when the market receives July CPI (prior -0.4%) and Core CPI (prior 0.0%), followed by PPI (-0.3%) and Core PPI (0.2%) on Thursday. Besides the FT report, the market learned from Bloomberg this morning that Alphabet (GOOG) is seeking to raise $25 bln as part of a ten-tranche debt sale. The news has likely contributed to the early pressure on the front end since it signals incoming investment grade supply into the bond market.
• Yield Check:
  • 2-yr: +4 bps to 4.22%
  • 3-yr: +3 bps to 4.27%
  • 5-yr: +4 bps to 4.36%
  • 10-yr: +3 bps to 4.64%
  • 30-yr: +1 bp to 5.19%