Bond Market Update

Post-NFP Gains Padded

• U.S. Treasuries began the week on a modestly higher note, padding their big post-NFP gains from Friday. The trading day started with some relative weakness in longer tenors and relative strength up front after a quiet start to the week in global markets. The overseas data flow was light, which was also the case in the U.S. The market only received the Factory Orders report for June (-4.8%; Briefing.com consensus -5.1%), which showed a decrease after a sharp rise in May (8.3%). Longer tenors recovered from their early underperformance immediately after the start, leading the complex past highs from Friday. The long bond hit its best level shortly after noon while shorter tenors stayed near their early highs into the close. The Federal Reserve released its Senior Loan Officer Opinion Survey for July, showing that lending standards tightened while demand decreased for commercial & industrial loans, which was also the case with commercial real estate loans. Standards for loans to households were unchanged but demand for mortgage loans weakened. Credit card demand weakened while auto loan demand strengthened. Crude oil retreated for the third consecutive day while the U.S. Dollar Index fell 0.4% to 98.77.
• Yield Check:
  • 2-yr: -2 bps to 3.68%
  • 3-yr: -2 bps to 3.65%
  • 5-yr: -3 bps to 3.74%
  • 10-yr: -2 bps to 4.20%
  • 30-yr: -1 bp to 4.80%

• News:
  • OPEC+ agreed to increase its output in September.
  • President Trump will appoint a new Fed Governor after Adriana Kugler submitted her resignation, effective August 8.
  • Switzerland's President Keller-Sutter said that her government reached out to the Trump administration after the U.S. announced a 39% tariff on imports from Switzerland. 
  • There are growing expectations that the Bank of England will start implementing 25-basis point cuts to its bank rate on a quarterly basis.
  • Japan's Prime Minister Ishiba said that the Japanese government is ready to compile an extra budget if necessary.
  • The Wall Street Journal reported that China is holding back the supply of critical minerals to Western defense contractors.
  • Officials from Japan and South Korea said that trade deals with the U.S. are not on paper yet and that details still need to be ironed out.
  • Japan's July Monetary Base fell 3.7% yr/yr (last -3.3%).
  • Australia's July MI Inflation Gauge was up 0.9% m/m (last 0.1%).
  • Eurozone's August Sentix Investor Confidence fell to -3.7 from 4.5 (expected 6.2).
  • Spain's July unemployment decreased by 1,400 (expected -21,300; last -48,900).
  • Swiss July CPI was unchanged m/m (expected -0.2%; last 0.2%), rising 0.2% yr/yr (expected 0.1%; last 0.1%). July Manufacturing PMI hit 48.8 (expected 49.8; last 49.6).
• Today's Data:
  • Factory orders slumped 4.8% month-over-month in June (Briefing.com consensus: -5.1%) following an upwardly revised 8.3% increase (from 8.2%) in May. Excluding transportation, factory orders increased 0.4% month-over-month following a 0.3% increase in May. Shipments of manufactured goods jumped 0.5% on the heels of a 0.2% increase in May.
    • The key takeaway from the report is that the weakness in factory orders in June was largely concentrated in transportation equipment orders, so the headline isn't as bad as it appears at first blush; however, some extra attention will be paid next month to new orders for nondefense capital goods excluding aircraft—a proxy for business spending—to see if the weakness in June (-0.8%), which followed a 1.9% increase in May, persists.
• Commodities:
  • WTI crude: -1.6% to $66.28/bbl
  • Gold: +0.8% to $3426.50/ozt
  • Copper: +0.2% to $4.44/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1564
  • GBP/USD: UNCH at 1.3273
  • USD/CNH: -0.1% to 7.1837
  • USD/JPY: -0.3% to 146.97
• The Day Ahead:
  • 8:30 ET: June Trade Balance (Briefing.com consensus -$62.0 bln; prior -$71.5 bln)
  • 9:45 ET: Final July S&P Global U.S. Services PMI (prior 52.9)
  • 10:00 ET: July ISM Services (Briefing.com consensus 51.5%; prior 50.8%)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results