Bond Market Update

10-Yr Yield Back Above 50-Day Average

• U.S. Treasuries began the week on a lower note, lifting the 10-yr yield back above its 50-day moving average (4.406%). Treasuries started the day with slim losses after the weekend brought news of a trade deal with the EU, which calls for a 15% tariff rate on European imports into the U.S., $750 bln in energy purchases from the U.S. over the next three years, and a $600 bln investment into the U.S. Treasuries widened their starting losses in early trade, remaining near their morning lows through two note auctions that preceded tomorrow's 7-yr note sale. Today's 2-yr note auction met decent demand, but the 5-yr note sale was a bit worse, and both auctions saw below-average foreign demand. Late trade saw 10s and 30s slip to fresh lows ahead of the close while shorter tenors finished a bit above their worst levels of the day. The U.S. Treasury announced after today's cash close that it expects to borrow $1.007 trln in Q3, $453 bln more than planned in April. Crude oil climbed back above its 50-day moving average (65.94) while the U.S. Dollar Index jumped 1.0% to 98.66.
• Yield Check:
  • 2-yr: +1 bp to 3.93%
  • 3-yr: +2 bps to 3.88%
  • 5-yr: +3 bps to 3.98%
  • 10-yr: +3 bps to 4.42%
  • 30-yr: +4 bps to 4.96%

• News:
  • The U.S. and China will extend the current tariff rates for three months to allow more time for negotiations.
  • Officials from Japan and the U.S. reportedly have a differing view on how the investment component of the trade deal with Japan will be utilized.
  • China's Premier Li said that his country is setting up an international AI collaboration group.
  • China's June Industrial Profit was down 1.8% YTD (last -1.1%).
  • Hong Kong's June trade deficit reached HKD58.90 bln (last deficit of HKD27.3 bln) as imports rose 11.1% m/m (last 18.9%) and exports grew 11.9% m/m (last 15.5%).
  • India's June Industrial Production was up 1.5% yr/yr (expected 2.0%; last 1.2%) and June Manufacturing Output was up 3.9% m/m (last 2.6%).
  • U.K.'s July CBI Distributive Trades Survey rose to -34 from -46 (expected -28).
• Today's Data:
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.920% (4.039%).
    • Bid-to-cover: 2.62 (2.64).
    • Indirect bid: 55.3% (69.3%).
    • Direct bid: 34.3% (19.0%).
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.983% (4.050%).
    • Bid-to-cover: 2.31 (2.39).
    • Indirect bid: 58.3% (69.7%).
    • Direct bid: 29.5% (18.4%).
• Commodities:
  • WTI crude: +2.4% to $66.75/bbl
  • Gold: -0.8% to $3309.60/ozt
  • Copper: -3.1% to $5.61/lb
• Currencies:
  • EUR/USD: -1.3% to 1.1590
  • GBP/USD: -0.6% to 1.3352
  • USD/CNH: +0.2% to 7.1817
  • USD/JPY: +0.6% to 148.54
• The Day Ahead:
  • 8:30 ET: June advance International Trade in Goods (prior -$96.6 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.3%)
  • 9:00 ET: May FHFA Housing Price Index (Briefing.com consensus -0.2%; prior -0.4%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 3.0%; prior 3.4%)
  • 10:00 ET: July Consumer Confidence (Briefing.com consensus 95.5; prior 93.0)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results