Bond Market Update

 Pullback Taking Shape

• U.S. Treasuries are on track for a modestly lower start after three days of gains that pressured yields on longer tenors from their highest levels of the year. Treasury futures spent the early portion of the night in a sideways range, slipping to lows once the focus turned to action in Europe, where equity markets are on the rise while sovereign debt is facing some mild pressure alongside U.S. Treasuries. JGBs bucked the trend overnight, climbing thanks to help from a good 30-yr JGB auction and comments from Finance Minister Katayama that new debt issuance will not be used to make up for tax revenue shortfalls. The overnight data flow was on the light side, but the U.S. session will feature the release of the preliminary Q2 report on Productivity (Briefing.com consensus 0.8%; prior 0.3%) and Unit Labor Costs (Briefing.com consensus 1.7%; prior 1.8%), which carries inflationary implications. Staying on the subject of inflation, FT reported this morning that Fed Chairman Warsh is open to a rate hike in September if high inflation persists. Crude oil hovers just above $75/bbl while the U.S. Dollar Index is up 0.1% at 99.75.
• Yield Check:
  • 2-yr: +3 bps to 4.21%
  • 3-yr: +3 bps to 4.27%
  • 5-yr: +4 bps to 4.36%
  • 10-yr: +3 bps to 4.65%
  • 30-yr: +3 bps to 5.20%

• News:
  • Fitch opined that the Bank of Japan will have to continue hiking rates for the yen to continue climbing off multi-decade low against the dollar.
  • South Korea's June Current Account surplus reached $49.73 bln (last surplus of $38.61 bln).
  • Australia's June Building Approvals were up 7.2% m/m, as expected (last -1.6%), rising 8.9% yr/yr, as expected (last 5.5%). June trade surplus reached AUD1.929 bln (expected deficit of AUD1.060 bln; last deficit of AUD2.367 bln) as imports fell 0.2% m/m (last 0.9%) and exports rose 9.6% m/m (last -7.6%).
  • Eurozone's June Retail Sales were down 0.3% m/m (expected 0.1%; last 0.4%) but up 0.7% yr/yr (expected 1.0%; last 1.9%).
  • Germany's June Factory Orders rose 3.1% m/m (expected 0.5%; last 0.3%).
  • France's final Q2 nonfarm payrolls were down 0.1% qtr/qtr, as expected (last -0.1%).
  • Italy's June Industrial Production was down 1.0% m/m (expected 0.3%; last -0.3%), falling 0.6% yr/yr (expected 1.0%; last 1.2%).
  • Spain's June Industrial Production was up 1.1% yr/yr (last 3.1%).
  • Swiss July Unemployment Rate remained at 3.1%, as expected.
• Commodities: 
  • WTI Crude: +0.8% to $75.80/bbl
  • Gold: +0.3% to $4319.60/ozt
  • Copper: +0.9% to $6.786/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1541
  • GBP/USD: UNCH at 1.3463
  • USD/CNH: UNCH at 6.7489
  • USD/JPY: +0.1% to 157.88
• Data out Today:
  • 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)