Bond Market Update

Three-Day Streak Snapped

• U.S. Treasuries retreated on Wednesday, snapping their streak of three consecutive days of gains. The trading day started with losses across the curve after the night brought news of a trade deal with Japan. The terms of the deal call for a 15% tariff on Japanese imports into the U.S. Japan will also invest $550 bln in the U.S. and open its market to auto and rice imports from the U.S. Later in the day, media outlets reported that the EU and the U.S. are also closing in on a deal that would result in a 15% tariff on European imports into the U.S. Treasuries ranged near their opening lows during the first couple hours of action, slipping to fresh lows in the wake of reports about the impending deal with the EU. The selling was met with an afternoon bounce, which followed the completion of a strong $13 bln 20-yr bond reopening. Late trade saw a fresh low in the 2-yr note while longer tenors finished a bit above their worst levels of the session with the 10-yr yield back above its 50-day moving average (4.411%). Crude oil recorded a slim loss while the U.S. Dollar Index slipped 0.2% to 97.22.
• Yield Check:
  • 2-yr: +5 bps to 3.88%
  • 3-yr: +5 bps to 3.83%
  • 5-yr: +6 bps to 3.93%
  • 10-yr: +5 bps to 4.39%
  • 30-yr: +5 bps to 4.95%

• News:
  • There is growing speculation that Japan's Prime Minister Ishiba will resign by the end of August.
  • Japan sold 40-yr bonds to weak demand.
  • Italy's Unicredit reported solid results and withdrew its bid for Banco BPM.
  • Japan's May BoJ Core CPI was up 2.3% yr/yr (expected 2.5%; last 2.5%).
  • South Korea's July Consumer Confidence rose to 110.8 from 108.7.
  • Singapore's June CPI was down 0.1% m/m (last 0.7%) but up 0.8% yr/yr (expected 0.9%; last 0.8%). June Core CPI was up 0.6% yr/yr (expected 0.7%; last 0.6%).
  • Australia's June MI Leading Index was unchanged m/m (last 0.1%).
• Today's Data:
  • Existing home sales decreased 2.7% month-over-month in June to a seasonally adjusted annual rate of 3.93 million (Briefing.com consensus 4.00 million) from a revised 4.04 million (from 4.03 million) in May. Sales were unchanged on a year-over-year basis.
    • The key takeaway from the report is that the median home sales price continued growing in June even though sales decelerated, which puts the spotlight on housing affordability at a time when mortgage rates remain high.
  • The weekly MBA Mortgage Index rose 0.8% after falling 10.0% a week ago. The Purchase Index was up 3.5% while the Refinance Index fell 2.6%.
  • Weekly crude oil inventories decreased by 3.17 million barrels after decreasing by 3.86 million barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.935% (4.649%).
    • Bid-to-cover: 2.79 (2.57).
    • Indirect bid: 67.4% (68.4%).
    • Direct bid: 21.9% (17.0%).
• Commodities:
  • WTI crude: -0.2% to $65.24/bbl
  • Gold: -1.3% to $3398.00/ozt
  • Copper: +1.8% to $5.82/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1774
  • GBP/USD: +0.4% to 1.3581
  • USD/CNH: -0.3% to 7.1510
  • USD/JPY: -0.1% to 146.43
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 221,000) and Continuing Claims (prior 1.956 mln)
  • 10:00 ET: June New Home Sales (Briefing.com consensus 650,000; prior 623,000)
  • 10:30 ET: Weekly natural gas inventories (prior +46 bcf)