Bond Market Update

Narrow Range Persists Ahead of June CPI

• U.S. Treasuries faced some pressure on Tuesday, which lifted yields on longer tenors back to their intraday highs from Monday. However, the overall pace of action was subdued and confined to a narrow range once again as the market awaits Thursday's release of June CPI (Briefing.com consensus 0.1%; prior 0.0%). Treasuries slipped out of the gate after a night that saw a positive showing from equities in Asia, headlined by a fresh record high in Japan's Nikkei. There was no noteworthy data overnight and the U.S. session was also quiet on that front. Fed Chairman Powell completed the first half of his two-day semiannual testimony on monetary policy to Congress and will be back on Capitol Hill tomorrow. Today's appearance before the Senate Banking Committee did not produce any surprises, as the Fed chairman commented on the risks associated with easing too soon or too late, repeating that it is unlikely that the next rate change will be a hike. Treasuries slipped past their early lows after the market received Fed Chairman Powell's prepared remarks, but a midday bounce returned action toward the day's starting levels with some help from a strong $58 bln 3-yr note sale, which will be followed by a $39 bln 10-yr note reopening tomorrow. Crude oil deepened its pullback from levels last seen in late April while the U.S. Dollar Index rose 0.1% to 105.14.
• Yield Check:
  • 2-yr: +1 bp to 4.63%
  • 3-yr: +1 bp to 4.41%
  • 5-yr: +2 bps to 4.25%
  • 10-yr: +3 bps to 4.30%
  • 30-yr: +4 bps to 4.50%

• News:
  • European Central Bank policymaker Panetta said that the central bank can gradually cut rates.
  • Italy's economy minister Giorgetti said that domestic growth could reach 0.9% this year.
  • China's auto-related exports to countries that are part of the Belt & Road Initiative were up 13.3% yr/yr during the first five months of 2024.
  • Bank of Korea Governor Rhee testified in parliament that he expects the disinflationary trend to continue.
  • New Zealand's Treasury warned that weak economic indicators suggest that a contraction took place in Q2. 
  • Japan's June M2 Money Stock 1.5% yr/yr (expected 2.0%; last 1.9%). May Machine Tool Orders 9.7% yr/yr (last 4.2%). 
  • Australia's July Westpac Consumer Sentiment was down 1.1% (last 1.7%). June NAB Business Confidence rose to 4 from -2 and Business Survey fell to 4 from 6.
• Today's Data:
  • The NFIB Small Business Optimism Index rose to 91.5 in June from 90.5 in May.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.399% (4.489%).
    • Bid-to-cover: 2.67 (2.63).
    • Indirect bid: 64.0% (63.8%).
    • Direct bid: 21.3% (18.9%).
• Commodities:
  • WTI crude: -1.0% to $81.48/bbl
  • Gold: +0.1% to $2368.20/ozt 
  • Copper: -0.4% to $4.58/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0813
  • GBP/USD: -0.2% to 1.2787
  • USD/CNH: +0.1% to 7.2877
  • USD/JPY: +0.3% to 161.25
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.6%)
  • 10:00 ET: May Wholesale Inventories (Briefing.com consensus 0.6%; prior 0.1%)
  • 10:30 ET: Weekly crude oil inventories (prior -12.16 mln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results