Bond Market Update

Jackson Hole Speech Rescues September Rate Cut Hopes

• U.S. Treasuries enjoyed a strong Friday outing that lifted the 10-yr note and shorter tenors into positive territory for the week while the long bond added to this week's gain. Treasuries started the day with slim gains that were extended in early trade, but the bulk of today's rally took place in response to Fed Chairman Powell's speech from the annual Jackson Hole Symposium. Going into today's event, the market was somewhat worried that the Fed chairman could maintain his hawkish tone and essentially erase the market's expectations for a September rate cut. Instead, Mr. Powell said that the shifting balance of risks may warrant an adjustment to policy, which was met with an immediate rally in stocks and Treasuries and a resurgence in September rate cut expectations. Besides the headline-grabbing comments, he also said that the central bank's average inflation targeting methodology, which has been used since 2020, will be replaced with a more traditional approach. Treasuries hit their best levels around 11:30 ET before nestling into a slim sideways range that remained in effect until the close. Crude oil extended this week's gain to $0.94, or 1.5%, at $63.67/bbl, while the U.S. Dollar Index fell 0.9% to 97.70, losing 0.1% for the week.
• Yield Check:
  • 2-yr: -10 bps to 3.69% (-7 bps this week)
  • 3-yr: -10 bps to 3.64% (-8 bps this week)
  • 5-yr: -10 bps to 3.76% (-9 bps this week)
  • 10-yr: -7 bps to 4.26% (-7 bps this week)
  • 30-yr: -4 bps to 4.88% (-5 bps this week)

• News:
  • President Trump said that he will fire Fed Governor Cook if she does not resign amid a mortgage fraud investigation.
  • Canada will remove some of its reciprocal tariffs in order to improve trade relations with the United States.
  • Bank of Japan Governor Ueda, European Central Bank President Lagarde, and Bank of England Governor Bailey will take part in a panel discussion at the Jackson Hole Symposium tomorrow.
  • Japan's Ministry of Finance is expected to raise its long-term rate forecast to 2.6% from 2.1%.
  • South Korea's Finance Ministry lowered its domestic growth forecast for 2025 to 0.9% from 1.8%. Growth in 2026 is expected to reach 1.8%.
  • Chinese chipmakers had a strong showing amid reports that NVIDIA is halting sales of the H20 chip to customers in China until a new product aimed for the Chinese market is ready.
  • DHL will temporarily suspend business shipments to the U.S. as de minimis duties are set to make a return at the end of next week.
  • Germany's Economy Minister Reiche said that the weak GDP report for Q2 shows the urgent need for action.
  • China's July FDI was down 13.4% YTD (last -15.2%).
  • Japan's July National CPI was up 0.1% m/m (last 0.1%), rising 3.1% yr/yr (last 3.3%). July National Core CPI was up 3.1% yr/yr (expected 3.0%; last 3.3%).
  • Germany's final Q2 GDP contracted 0.3% qtr/qtr (expected -0.1%; last 0.3%) but was up 0.2% yr/yr (expected 0.4%; last 0.3%).
  • France's August Business Survey remained at 96, as expected.
• Commodities:
  • WTI crude: +0.3% to $63.67/bbl
  • Gold: +1.1% to $3418.80/ozt
  • Copper: +0.5% to $4.46/lb
• Currencies:
  • EUR/USD: +1.0% to 1.1718
  • GBP/USD: +0.9% to 1.3524
  • USD/CNH: -0.1% to 7.1722
  • USD/JPY: -1.0% to 146.90
• The Week Ahead:
  • Monday: July New Home Sales (Briefing.com consensus 630,000; prior 627,000) at 10:00 ET
  • Tuesday: July Durable Orders (Briefing.com consensus -3.5%; prior -9.3%) and Durable Orders ex-transport (Briefing.com consensus 0.1%; prior 0.2%) at 8:30 ET; June FHFA Housing Price Index (Briefing.com consensus -0.1%; prior -0.2%) and June S&P Case-Shiller Home Price Index (Briefing.com consensus 2.8%; prior 2.8%) at 9:00 ET; August Consumer Confidence (Briefing.com consensus 96.3; prior 97.2) at 10:00 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -1.4%) at 7:00 ET; weekly crude oil inventories (prior -6.01 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: Q2 GDP -- Second Estimate (Briefing.com consensus 3.0%; prior 3.0%), Q2 GDP Deflator -- Second Estimate (Briefing.com consensus 2.0%; prior 2.0%), weekly Initial Claims (Briefing.com consensus 236,000; prior 235,000), and Continuing Claims (prior 1.972 mln) at 8:30 ET; July Pending Home Sales (Briefing.com consensus 0.3%; prior -0.8%) at 10:00 ET; weekly natural gas inventories (prior +13 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: July Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.5%; prior 0.3%), PCE Prices (Briefing.com consensus 0.2%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), July advance international goods trade (prior -$96.4 bln), July advance Retail Inventories (prior 0.3%), and July advance Wholesale Inventories (prior 0.2%) at 8:30 ET; August Chicago PMI (Briefing.com consensus 46.0; prior 47.1) at 9:45 ET; and final August University of Michigan Consumer Sentiment (Briefing.com consensus 58.6; prior 58.6) at 10:00 ET