Bond Market Update

Waiting on CPI

• U.S. Treasuries are on track for a slightly lower start leading into the 8:30 ET release of June CPI (Briefing.com consensus 0.1%; prior 0.0%) and Core CPI (Briefing.com consensus 0.2%; prior 0.2%). True to this week's form, Treasury futures spent the night in a narrow range, reaching lows near the end of the Asian session, followed by a bounce to fresh highs. Overnight trade saw a positive showing from Asian equities with Japan's Nikkei reaching another record high while action in Europe has been more subdued in anticipation of the U.S. CPI report. Meanwhile, the U.K. reported stronger-than-expected growth in May, but Industrial Production growth missed expectations. Crude oil is hanging onto yesterday's gain while the U.S. Dollar Index is down 0.2% at 104.86.
• Yield Check:
  • 2-yr: UNCH at 4.63%
  • 3-yr: +1 bp to 4.40%
  • 5-yr: UNCH at 4.24%
  • 10-yr: +1 bp to 4.29%
  • 30-yr: +1 bp to 4.48%

• News:
  • The Bank of Korea left its policy rate at 3.50%, as expected, though Governor Rhee acknowledged that the bank is preparing to "switch lanes," suggesting a rate cut is approaching.
  • Expectations are growing for the People's Bank of China to cut the reserve requirement ratio by 25 bps and lower the one-year loan prime rate by 10 bps before the end of Q3
  • South Korea's exports through the first ten days of July were up 33.8% yr/yr with chip exports jumping 85.7%.
  • European Central Bank policymaker and Bank of France Governor Villeroy de Galhau cautioned that France cannot keep widening its budget deficit.
  • Italy is expected to reduce its planned debt sales for the second half of the year due to better-than-expected cash balance.
  • Japan's May Core Machinery Orders were down 3.2% m/m (expected 0.9%; last -2.9%) but up 10.8% yr/yr (expected 7.2%; last 0.7%).
  • Australia's July MI Inflation Expectations slowed to 4.3% from 4.4%.
  • New Zealand's June FPI was up 1.0% m/m (last -0.2%).
  • Germany's June CPI was up 0.1% m/m, as expected (last 0.1%), rising 2.2% yr/yr, as expected (last 2.4%).
  • U.K.'s May GDP grew 0.4% m/m (expected 0.2%: last 0.0%), expanding 1.4% yr/yr (expected 1.2%; last 0.7%). May Construction Output was up 1.9% m/m (expected 0.5%; last -1.1%), rising 0.8% yr/yr (expected -1.9%; last -2.1%). May Industrial Production rose 0.2% m/m (expected 0.3%; last -0.9%), increasing 0.4% yr/yr (expected 0.6%; last -0.7%). May trade deficit reached GBP17.92 bln (expected deficit of GBP15.60 bln; last deficit of GBP19.44 bln).
• Commodities:
  • WTI Crude: +0.1% to $82.15/bbl
  • Gold: +0.3% to $2386.20/ozt
  • Copper: -0.8% to $4.572/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0854
  • GBP/USD: +0.2% to 1.2877
  • USD/CNH: -0.2% to 7.2768
  • USD/JPY: UNCH at 161.53
• Data out Today:
  • 8:30 ET: June CPI (Briefing.com consensus 0.1%; prior 0.0%), Core CPI (Briefing.com consensus 0.2%; prior 0.2%), weekly Initial Claims (Briefing.com consensus 234,000; prior 238,000), and Continuing Claims (prior 1.858 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +32 bcf)
  • 14:00 ET: June Treasury Budget (prior -$347.1 bln)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results