Bond Market Update

Tuesday Swoon Reversed

• U.S. Treasuries ended Wednesday with solid gains across the curve that wiped out the market's losses from the start of the week. The trading day started with slight gains after a night that saw limited movement in Treasury futures. However, ongoing pressure on longer-dated bonds in Japan and the U.K. continued, sending Japan's 30-yr yield to a fresh record near 3.18% while the U.K.'s 30-yr Gilt yield hit a record at 5.75%. On a somewhat related note, the U.S. 30-yr bond underperformed on Tuesday, but it led today's rally, sending its yield back to its 50-day moving average (4.892%). Treasuries spent the opening hour near their starting levels before embarking on a rally that continued into the early afternoon. The buying, which sent the 2-yr yield to its lowest close in nearly a year, accelerated after today's economic data showed that job openings in July decreased to 7.181 million, a level not seen since early 2021. Employment will remain in focus for the remainder of the week with the August ADP Employment Change report (Briefing.com consensus 69,000; prior 104,000) scheduled to be released at 8:15 ET tomorrow while the official Employment Situation Report (Briefing.com consensus 78,000; prior 73,000) from the Bureau of Labor Statistics will be released on Friday morning. Crude oil gave back yesterday's gain amid speculation about a potential output increase while the U.S. Dollar Index fell 0.3% to 98.14.
• Yield Check:
  • 2-yr: -5 bps to 3.61%
  • 3-yr: -5 bps to 3.58%
  • 5-yr: -6 bps to 3.69%
  • 10-yr: -7 bps to 4.21%
  • 30-yr: -8 bps to 4.89%

• News:
  • The Federal Reserve's Beige Book for August showed no significant change in activity since the last report. There was persistent tariff-related uncertainty while retailers and hospitality businesses offered discounts to maintain customer flow. Eleven Districts saw little or no change in overall employment levels while ten Districts reported moderate or modest price growth.
  • OPEC+ will consider an output hike at its meeting scheduled for Sunday.
  • Japan's Prime Minister Ishiba repeated that he intends to maintain his post, but his party may call a leadership election.
  • European Central Bank policymaker de Cos acknowledged the weakening growth outlook but also said that the central bank's main priority is fighting inflation.
  • China's August S&P Global Services PMI hit 53.0 (expected 52.4; last 52.6).
  • Japan's August Services PMI hit 53.1 (expected 52.7; last 52.7).
  • South Korea's Q2 GDP expanded 0.7% qtr/qtr (expected 0.6%; last 0.6%), growing 0.6% yr/yr (expected 0.5%; last 0.5%).
  • India's August Services PMI hit 62.9 (expected 65.6; last 60.5).
  • Hong Kong's August Manufacturing PMI hit 50.7 (last 49.2).
  • Australia's Q2 GDP expanded 0.6% qtr/qtr (expected 0.5%; last 0.3%), growing 1.8% yr/yr (expected 1.6%; last 1.4%). August Services PMI hit 55.8 (expected 55.1; last 54.1) and August AIG Manufacturing Index hit -20.9 (last -23.9).
  • Eurozone's August Services PMI hit 50.5 (expected 50.7; last 51.0). July PPI was up 0.4% m/m (expected 0.2%; last 0.8%), rising 0.2% yr/yr (expected 0.1%; last 0.6%).
  • Germany's August Services PMI hit 49.3 (expected 50.1; last 50.6).
  • U.K.'s August Services PMI hit 54.2 (expected 53.6; last 51.8).
  • France's August Services PMI hit 49.8 (expected 49.7; last 48.5).
  • Italy's August Services PMI hit 51.5 (expected 52.1; last 52.3).
  • Spain's August Services PMI hit 53.2 (expected 54.4; last 55.1).
• Today's Data:
  • Factory orders declined 1.3% month-over-month in July (Briefing.com consensus: -1.4%) following a 4.8% decline in June. Excluding transportation, factory orders increased 0.6% month-over-month following a 0.4% increase in June. Shipments of manufactured goods jumped 0.9% on the heels of a 0.6% increase in June.
    • The key takeaway from the report is that the weakness in factory orders in July was concentrated in the transportation space, so the weakness was not as acute as the headline might suggest. New orders for primary metals (+1.6%), machinery (+1.9%), computers and electronic products (+1.2%), and electrical equipment, appliances, and components (+1.9%) were all up in a good sign for factory order activity.
  • Job openings decreased to 7.181 million in July from a revised 7.357 million (from 7.437 million) in June.
  • The weekly MBA Mortgage Index fell 1.2% to follow last week's 0.5% decrease. The Purchase Index was down 3.1% while the Refinance Index was up 0.9%.
• Commodities:
  • WTI crude: -2.4% to $64.00/bbl
  • Gold: +1.2% to $3635.40/ozt
  • Copper: -0.2% to $4.63/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1660
  • GBP/USD: +0.4% to 1.3440
  • USD/CNH: +0.1% to 7.1397
  • USD/JPY: -0.2% to 148.00
• The Day Ahead:
  • 8:15 ET: August ADP Employment Change (Briefing.com consensus 69,000; prior 104,000)
  • 8:30 ET: Revised Q2 Productivity (Briefing.com consensus 2.4%; prior 2.4%), revised Q2 Unit Labor Costs (Briefing.com consensus 1.6%; prior 1.6%), weekly Initial Claims (Briefing.com consensus 232,000; prior 229,000), Continuing Claims (prior 1.954 mln), and July Trade Balance (Briefing.com consensus -$64.2 bln; prior -$60.2 bln)
  • 9:45 ET: Final August S&P Global U.S. Services PMI (prior 55.4)
  • 10:00 ET: August ISM Services (Briefing.com consensus 50.5%; prior 50.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +18 bcf)
  • 13:00 ET: Weekly crude oil inventories (prior -2.39 mln)

Long End Maintains Lead

• U.S. Treasuries have seen some more buying since our last update, though the pace of the advance slowed considerably during the past two hours. Longer tenors have maintained today's lead, helping the 30-yr yield back down from its highest level since late July. The 10-yr yield is now just two basis points above its low from August while yields on shorter tenors are down to levels not seen since at least early May. Equities are defending their slim gains with the S&P 500 up 0.3% even though only three sectors trade higher.
• Yield Check:
  • 2-yr: -5 bps to 3.61%
  • 3-yr: -6 bps to 3.57%
  • 5-yr: -6 bps to 3.68%
  • 10-yr: -7 bps to 4.21%
  • 30-yr: -8 bps to 4.89%

Data Recon

• Factory orders declined 1.3% month-over-month in July (Briefing.com consensus: -1.4%) following a 4.8% decline in June. Excluding transportation, factory orders increased 0.6% month-over-month following a 0.4% increase in June. Shipments of manufactured goods jumped 0.9% on the heels of a 0.6% increase in June.
  • The key takeaway from the report is that the weakness in factory orders in July was concentrated in the transportation space, so the weakness was not as acute as the headline might suggest. New orders for primary metals (+1.6%), machinery (+1.9%), computers and electronic products (+1.2%), and electrical equipment, appliances, and components (+1.9%) were all up in a good sign for factory order activity.
• Yield Check:
  • 2-yr: -5 bps to 3.61%
  • 3-yr: -5 bps to 3.58%
  • 5-yr: -5 bps to 3.69%
  • 10-yr: -5 bps to 4.22%
  • 30-yr: -6 bps to 4.91%

Gains Extended

• U.S. Treasuries trade on their highs after a recent acceleration of their advance. The market spent the first hour of trade near the unchanged level, but a rally developed after that with the recent push to highs helping the complex erase the remainder of its losses from yesterday. Reported not long ago, job openings fell to 7.181 million in July from a revised 7.357 million in June. This was the lowest number of openings since early 2021. Equities are off to a mostly higher start with the Nasdaq (+1.0%) and S&P 500 (+0.4%) trading well ahead of the Dow (-0.3%).
• Yield Check:
  • 2-yr: -5 bps to 3.61%
  • 3-yr: -5 bps to 3.58%
  • 5-yr: -6 bps to 3.69%
  • 10-yr: -6 bps to 4.22%
  • 30-yr: -7 bps to 4.90%

Inching Higher

• U.S. Treasuries are on track for a slightly higher start after yesterday's retreat across the curve. Treasury futures spent the first half of the night in a slow retreat that was partially reversed over the past couple hours. The overnight session saw the release of final August Services PMI readings from major economies with Japan (53.1; expected 52.7) and China (53.0; expected 52.4) beating expectations while the eurozone's reading (50.5; expected 50.7) was shy of estimates. Yields on long-term Japanese and British debt hit fresh highs, making for a continuation of the recent selling. Japan's 30-yr yield reached a fresh record near 3.18% while the 20-yr yield climbed to 2.66%, a level not seen in 26 years. The U.K.'s 30-yr Gilt yield, for its part, hit a record of 5.75% before rebounding. The U.S. session will not feature any top-tier data but the 10:00 ET release of the Job Openings and Labor Turnover Survey for July could be noteworthy given the growing focus on the labor market. Crude oil is giving back yesterday's gain while the U.S. Dollar Index is down 0.1% at 98.35.
• Yield Check:
  • 2-yr: -1 bp to 3.65%
  • 3-yr: -1 bp to 3.62%
  • 5-yr: UNCH at 3.74%
  • 10-yr: -1 bp to 4.27%
  • 30-yr: -1 bp to 4.96%

• News:
  • Japan's Prime Minister Ishiba repeated that he intends to maintain his post, but his party may call a leadership election.
  • European Central Bank policymaker de Cos acknowledged the weakening growth outlook but also said that the central bank's main priority is fighting inflation.
  • China's August S&P Global Services PMI hit 53.0 (expected 52.4; last 52.6).
  • Japan's August Services PMI hit 53.1 (expected 52.7; last 52.7).
  • South Korea's Q2 GDP expanded 0.7% qtr/qtr (expected 0.6%; last 0.6%), growing 0.6% yr/yr (expected 0.5%; last 0.5%).
  • India's August Services PMI hit 62.9 (expected 65.6; last 60.5).
  • Hong Kong's August Manufacturing PMI hit 50.7 (last 49.2).
  • Australia's Q2 GDP expanded 0.6% qtr/qtr (expected 0.5%; last 0.3%), growing 1.8% yr/yr (expected 1.6%; last 1.4%). August Services PMI hit 55.8 (expected 55.1; last 54.1) and August AIG Manufacturing Index hit -20.9 (last -23.9).
  • Eurozone's August Services PMI hit 50.5 (expected 50.7; last 51.0). July PPI was up 0.4% m/m (expected 0.2%; last 0.8%), rising 0.2% yr/yr (expected 0.1%; last 0.6%).
  • Germany's August Services PMI hit 49.3 (expected 50.1; last 50.6).
  • U.K.'s August Services PMI hit 54.2 (expected 53.6; last 51.8).
  • France's August Services PMI hit 49.8 (expected 49.7; last 48.5).
  • Italy's August Services PMI hit 51.5 (expected 52.1; last 52.3).
  • Spain's August Services PMI hit 53.2 (expected 54.4; last 55.1).
• Commodities:
  • WTI Crude: -2.0% to $64.24/bbl
  • Gold: +0.7% to $3616.30/ozt
  • Copper: -0.2% to $4.632/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1651
  • GBP/USD: +0.2% to 1.3411 
  • USD/CNH: +0.1% to 7.1445
  • USD/JPY: +0.2% to 148.62
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -1.2%; prior -0.5%)
  • 10:00 ET: July Factory Orders (Briefing.com consensus -1.4%; prior -4.8%) and July Job Openings (prior 7.437 mln)
  • 14:00 ET: September Beige Book