Bond Traders Weekly Outlook: Yield Curve Pressured Ahead of September Data Drop

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    U.S. Treasuries lower start with longer tenors expected to resume last week’s underperformance, though the 2-yr note is also set for a weak start.

    Treasury futures began retreating early evening trade. People’s Bank of China lowered its one-year loan prime rate by ten basis points to 3.45% while the 5-yr rate was left unchanged at 4.20%. Bank stocks underperformed in Hong Kong after the PBoC action was announced due to expectations for more aggressive action.

    Crude oil is climbing toward its high from two weeks ago
    U.S. Dollar Index is down 0.1% at 103.27, dipping back to its 200-day moving average (103.21).

    2-yr: +5 bps to 4.96%
    3-yr: +2 bps to 4.66%
    5-yr: +3 bps to 4.41%
    10-yr: +4 bps to 4.29%
    30-yr: +5 bps to 4.43%


    Early Bonds: U.S. Treasuries modestly higher. Crude oil spinning around $80 WTI while the U.S. Dollar Index is flat at 103.30.

    Overnight trade saw more efforts to defend the yuan, as state-owned banks intervened in the offshore market while the People’s Bank of China announced a daily fix that was over 1000 pips stronger than what the market expected

    2-yr: UNCH at 4.99%
    3-yr: -1 bp to 4.70%
    5-yr: -2 bps to 4.44%
    10-yr: -3 bps to 4.31%
    30-yr: -4 bps to 4.42%


    Morning Bonds: U.S. Treasuries trade on highs after extending their initial gains
    Yields on 10 &30-yr bond one-week lows

    2-yr: -11 bps to 4.93%
    3-yr: -13 bps to 4.62%
    5-yr: -11 bps to 4.37%
    10-yr: -10 bps to 4.23%


    New home sales increased 4.4% month-over-month in July to a seasonally adjusted annual rate of 714,000 units (consensus 701,000) from a downwardly revised 684,000 (from 697,000) in June. On a year-over-year basis, new home sales were up 31.5%.

    The key takeaway from the report is that new home sales activity, which is measured on signed contracts, was driven by sales of more moderately priced homes as higher building costs crimped the supply of lower-priced homes while higher mortgage rates contributed to affordability pressures across the spectrum.


    Bond Losses Widened After Powell

    U.S. Treasuries trade on their lows with the 2-yr note holding a solid loss while the long bond outperforms, sitting just below its flat line.

    Treasuries have seen some early volatility inside a narrow range, as the market responded to Fed Chairman Powell’s speech from the Jackson Hole Symposium.

    The Fed Chairman said that the central bank is prepared for more rate hikes, though he also said that policymakers are in a position to “proceed carefully” when it comes to assessing incoming data. Mr. Powell said that the goal is to hold policy at a restrictive level until there is confidence that inflation is slowing toward the objective.

    He also acknowledged that the economy has not been cooling as expected, which could be viewed as a signal that more rate hikes are in the works.

    Equities are little changed with the S&P 500 (+0.1%) trading a step behind the Nasdaq (+0.2%) while the Dow (unch) is continuing its recent underperformance.

    2-yr: +9 bps to 5.10%
    3-yr: +6 bps to 4.77%
    5-yr: +7 bps to 4.47%
    10-yr: +4 bps to 4.27%
    30-yr: +1 bp to 4.31%


    More financial conditions tightening this week as “risk on” has begun the transition to “risk off,” with the system now vulnerable to an abrupt change
    [See the full post at: Bond Traders Weekly Outlook: Yield Curve Pressured Ahead of September Data Drop]

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