Bond Market Update

Longer Tenors Trim July Losses

• U.S. Treasuries finished July on a subdued note despite a morning barrage of economic data. The trading day started with modest gains that were paced by the long end after night that saw the release of China's official Manufacturing PMI (49.3; prior 49.7), which showed a deepening contraction while Non-Manufacturing PMI (50.1; prior 50.5) pointed to a significant slowdown in growth. There was also news of a trade deal with South Korea, which calls for South Korea to invest $350 bln in the U.S. and buy $100 bln worth of energy products from the U.S. Imports from South Korea will face a 15% tariff while U.S. exports to South Korea will not be subject to any tariffs. Treasuries dipped from their starting levels after today's data showed in-line Personal Income growth for June (0.3%; prior -0.4%) and slightly hotter than expected Employment Cost Index for Q1 (0.9%; Briefing.com consensus 0.8%). Initial jobless claims increased slightly from last week (to 218,000 from 217,000) after six consecutive week-over-week decreases. The post-data dip was reversed as the morning went on, leaving the market in a sideways range until late trade when the entire complex drifted back to morning lows. The quiet session capped a month that saw losses across the complex with relative weakness up front amid receding bets for near-term easing from the Fed. Crude oil fell back below $70/bbl, narrowing this month's gain to $4.21, or 6.5%, while the U.S. Dollar Index rose 0.2% to 99.97, gaining 3.3% for the month.
• Yield Check:
  • 2-yr: +1 bp to 3.95% (+23 bps in July)
  • 3-yr: UNCH at 3.89% (+20 bps in July)
  • 5-yr: -1 bp to 3.96% (+16 bps in July)
  • 10-yr: -2 bps to 4.36% (+13 bps in July)
  • 30-yr: -3 bps to 4.89% (+11 bps in July)

• News:
  • The Atlanta Fed initiated its Q3 GDPNow forecast at 2.3%.
  • President Trump announced that Mexico's current tariff rate will be extended for 90 days to continue negotiations.
  • The Bank of Japan's latest meeting concluded with no changes to policy.
  • Imports from India will be subject to a 25% tariff, starting tomorrow.
  • Bundesbank President Nagel said that "the last mile of disinflation is the hardest" and that policy should not be loosened prematurely.
  • China's July Manufacturing PMI hit 49.3 (expected 49.7; last 49.7) and July Non-Manufacturing PMI hit 50.1 (expected 50.3; last 50.5).
  • Japan's June Industrial Production rose 1.7% m/m (expected -0.7%; last -0.1%). June Retail Sales rose 2.0% yr/yr (expected 1.8%; last 1.9%). July Housing Starts fell 15.6% yr/yr (expected -16.3%; last -34.4%) and July Household Confidence fell to 33.7 from 34.5 (expected 35.1).
  • South Korea's June Industrial Production rose 1.6% m/m (last -3.3%), increasing 1.6% yr/yr (last -0.3%). June Retail Sales were up 0.5% m/m (last -0.1%).
  • Hong Kong's Q2 GDP expanded 0.4% qtr/qtr (expected -0.2%; last 1.9%), growing 3.1% yr/yr (expected 2.8%; last 3.1%). June Retail Sales were up 0.7% yr/yr (last 2.4%).
  • Australia's June Building Approvals were up 11.9% m/m (expected 1.8%; last 2.2%), rising 5.4% yr/yr (expected 8.0%; last 8.1%). June Private Sector Credit was up 0.6% m/m (expected 0.5%; last 0.5%) and June Private House Approvals were down 2.0% m/m (last -1.0%). Q2 Import Price Index was down 0.8% qtr/qtr (expected -0.5%; last 3.3%) and Export Price Index was down 4.5% qtr/qtr (last 2.1%). July Retail Sales rose 1.2% m/m (expected 0.4%; last 0.1%) and Q2 Retail Sales were up 0.3% qtr/qtr (last 0.1%).
  • Singapore's Q2 Business Expectations rose to 5.00 from -6.00.
  • Eurozone's June Unemployment Rate remained at 6.2% (expected 6.3%).
  • Germany's flash July CPI 0.3% m/m (expected 0.2%; last 0.0%); 2.0% yr/yr (expected 1.9%; last 2.0%). July Import Price Index was unchanged m/m (expected -0.2%; last -0.7%), falling 1.4% yr/yr (expected -1.6%; last -1.1%). July Unemployment increased by 2,000 (expected 15,000; last 10,000) and July Unemployment Rate remained at 6.3% (expected 6.4%).
  • France's July CPI was up 0.2% m/m (expected 0.3%; last 0.4%), rising 1.0% yr/yr, as expected (last 1.0%). June PPI was down 0.2% m/m (last -0.9%) but up 0.2% yr/yr (last 0.0%).
  • Italy's June Unemployment Rate fell to 6.3% from 6.5% (expected 6.4%). July CPI was up 0.4% m/m (expected 0.1%; last 0.2%), rising 1.7% yr/yr (expected 1.5%; last 1.7%). June PPI was up 1.5% m/m (last -0.7%), rising 2.5% yr/yr (last 1.7%).
  • Spain's May Current Account surplus reached EUR6.44 bln (last surplus of EUR1.36 bln).
  • Swiss June Retail Sales were up 3.8% yr/yr (expected 0.2%; last 0.3%).
• Today's Data:
  • Personal income increased 0.3% month-over-month in June (Briefing.com consensus: 0.3%) following a 0.4% decline in May; personal spending increased 0.3% month-over-month (Briefing.com consensus: 0.4%) following an upwardly revised unchanged reading (from -0.1%) in May; the PCE Price Index was up 0.3% month-over-month (Briefing.com consensus: 0.3%) and 2.6% yr/yr (vs 2.4% in May); and the core-PCE Price Index was up 0.3% month-over-month (Briefing.com consensus: 0.3%) and 2.8% yr/yr (vs 2.8% in May).
    • The key takeaway from the report is that real personal spending was up a modest 0.1% in June. That isn't much, although it does show that consumers continue to have the capacity to spend in the face of higher prices.
  • Initial jobless claims for the week ending July 26 increased by 1,000 to 218,000 (Briefing.com consensus: 220,000). Continuing jobless claims for the week ending July 19 were unchanged at 1.946 million.
    • The key takeaway from the report is the recognition that employers still remain reluctant to lay off employees, but employees that do get laid off are facing a tougher time finding a new job.
  • The Q2 Employment Cost Index increased 0.9% (Briefing.com consensus: 0.8%) for the 3-month period ending in June 2025, with wages and salaries up 1.0% and benefit costs up 0.7%.
    • The key takeaway from the report is that compensation costs have moderated, which could serve to lower some of the inflation temperature at the Fed.
  • Chicago PMI hit 47.1 in July (Briefing.com consensus 42.1), up from 40.4 in June.
  • Weekly natural gas inventories increased by 48 bcf after increasing by 23 bcf a week ago.
• Commodities:
  • WTI crude: -1.0% to $69.31/bbl
  • Gold: -0.1% to $3348.60/ozt
  • Copper: -21.9% to $4.36/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1429
  • GBP/USD: -0.1% to 1.3221
  • USD/CNH: UNCH at 7.2099
  • USD/JPY: +0.9% to 150.76
• The Day Ahead:
  • 8:30 ET: July Nonfarm Payrolls (Briefing.com consensus 102,000; prior 147,000), Nonfarm Private Payrolls (Briefing.com consensus 110,000; prior 74,000), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.1%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2)
  • 9:45 ET: Final July S&P Global U.S. Manufacturing PMI (prior 52.9)
  • 10:00 ET: June Construction Spending (Briefing.com consensus 0.1%; prior -0.3%), July ISM Manufacturing Index (Briefing.com consensus 49.5%; prior 49.0%), and final July University of Michigan Consumer Sentiment (Briefing.com consensus 61.8; prior 61.8)