Bond Market Update

Steady Showing Masks Global Pressure

• U.S. Treasuries finished Wednesday near their unchanged levels, but the flat finish masked a brief morning dip that sent yields on 10s and shorter tenors to fresh highs for the year. All in all, today's mostly flat showing was impressive, considering overnight trade saw general weakness in global sovereign debt, resulting in fresh 2026 highs in all JGB yields and 10-yr yields in Germany, France, and the U.K. Treasuries started day with slim gains, but selling pressure began building moments after the start. The pressure persisted into mid-morning, producing fresh year-to-date highs in all note yields, though not by much. The rest of the day saw sideways action just above lows with the bulk of the complex hanging onto razor-thin gains. Crude oil edged up to $91/bbl while the U.S. Dollar Index slipped 0.1% to 99.59.
• Yield Check:
  • 2-yr: UNCH at 4.39%
  • 3-yr: -1 bp to 4.45%
  • 5-yr: -1 bp to 4.55%
  • 10-yr: UNCH at 4.80%
  • 30-yr: UNCH at 5.27%

• News:
  • Treasury Secretary Bessent said that China continues to flood the world with cheap exports due to industrial overcapacity.
  • The G20 meeting of finance ministers and central bankers in North Carolina ended yesterday without a joint statement after China did not support parts of the draft statement pertaining to shipping in the Strait of Hormuz, non-market policies, and external surpluses.
  • The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.75%, as expected.
  • South Korea and Japan will deepen their cooperation on energy, critical minerals, and carbon rules.
  • European Central Bank policymaker Nagel acknowledged that the market is all but certain about a rate hike later this month.
  • South Korea's August CPI was up 0.2% m/m (expected 0.3%; last -0.2%), rising 3.1% yr/yr (expected 3.2%; last 2.8%).
  • Australia's Q2 GDP was up 0.4% qtr/qtr (expected 0.3%; last 0.3%), rising 2.1% yr/yr (expected 1.8%; last 2.5%). August AIG Construction Index rose to -6.9 from -40.8 and AIG Manufacturing Index rose to -16.6 from -19.3.
  • New Zealand's July Building Consents were down 4.3% m/m (last -3.7%).
  • France's July budget deficit reached EUR145.9 bln (last deficit of EUR106.8 bln).
  • Italy's July PPI was up 2.4% m/m (last 0.0%), rising 7.8% yr/yr (last 5.8%).
  • Spain's August Unemployment increased by 44,400 (expected 15,400; last 19,500).
• Today's Data:
  • The ADP Employment Change report pointed to the addition of 38,000 nonfarm payrolls in August (Briefing.com consensus 47,000) while the July increase was revised to 46,000 from 44,000. 
  • Factory orders increased 0.9% month-over-month in July (Briefing.com consensus: 0.6%) following an upwardly revised 0.2% decline (from -0.3%) in June. Excluding transportation, factory orders increased 0.6% on the heels of a 0.1% decline in June. Shipments of manufactured goods increased 0.8% after being flat in June.
    • The key takeaway from the report is that factory orders were running at a good clip in July for durable and nondurable goods. Although business spending was flat, that was likely just a normal slowdown from the solid increases registered in May and June.
  • The weekly MBA Mortgage Index was up 0.8% after falling 1.0% a week ago. The Purchase Index rose 2.2% while the Refinance Index fell 1.1%.
  • Weekly crude oil inventories decreased by 4.45 mln barrels after increasing by 95,000 barrels a week ago.
• Commodities:
  • WTI crude: +0.8% to $90.96/bbl
  • Gold: +0.4% to $4416.60/ozt
  • Copper: -0.2% to $6.59/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1586
  • GBP/USD: -0.2% to 1.3485
  • USD/CNH: UNCH at 6.7186
  • USD/JPY: -0.8% to 158.95
• The Day Ahead:
  • 8:30 ET: July Trade Balance (Briefing.com consensus -$89.6 bln; prior -$73.3 bln), revised Q2 Productivity (Briefing.com consensus 1.4%; prior 1.4%), revised Q2 Unit Labor Costs (Briefing.com consensus 1.3%; prior 1.3%), weekly Initial Claims (Briefing.com consensus 205,000; prior 203,000), and Continuing Claims (prior 1.778 mln)
  • 9:45 ET: Final August S&P Global U.S. Services PMI (prior 56.8)
  • 10:00 ET: August ISM Non-Manufacturing Index (Briefing.com consensus 54.1%; prior 54.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +15 bcf)