Bond Market Insights - Wed, 30 July 2025

Monday’s UST session was  characterised well received $69bn 2yr auction, with strong demand from real money, and a sloppy $70bn 5yr. Last night, fortunes were reversed. There was no obvious trigger, but there was some unwinding of steepeners ahead of today’s quarterly refunding announcement (QRA), where investors are bracing for potential increases in long-end buybacks and a move toward a shorter weighted average maturity in issuance. It is also month end, where we could see pension funds rebalancing away from equities and into fixed income.

The $44bn 7yr auction itself went well. It stopped 2.7bps through the market, and a record 96% was taken down by non-dealers, signalling broad-based demand. The print forced the market higher, 10yr yields breaking below the 100 day moving average, touching 4.325%, 30yr yields slipped to 4.865% at one point, the lowest since July 11. 2s10s curve flattened to 44bps, and 5s30s to 95bps.

Economic data was mixed. JOLTs job openings dipped slightly to 7.437 million, undershooting expectations but still consistent with a tight labour market. Consumer confidence beat forecasts, rising to 97.2 with improvements in both current and forward-looking expectations. However, the labour market differential, a component of the Conference Board’s consumer confidence survey describing “are jobs plentiful or are they hard to get”, continued to deteriorate. On the trade front, the advance goods balance narrowed significantly, with the deficit falling to -$86 billion, well below consensus at -$98 billion. This improvement has already led some to revise up their GDP estimates. The Atlanta Fed lifted its Q2 call to 2.9%, while Goldman Sachs now sees 3.1% growth in the quarter.

In Europe, ECB rhetoric turned cautious. Governing Council member Makhlouf suggesting that the eurozone is now in a “wait and see” phase, with inflation having stabilized and growth aligning with expectations. Deutsche Bank’s revised his terminal rate forecast upward from 1.5% to 2.0%, citing persistent fiscal easing and the looming rise in EU defence spending as constraints on the central bank’s room to cut.

There is a lot of banter on the US Japan Trade Deal. It is not a formal treaty, nor even a MOU, but an arrangement built almost entirely on verbal assurances from President Trump, a replay of 2019. This time, there’s not even a joint communiqué. Each side released its own “fact sheet” and there are discrepancies.

The US believes Japan has promised to buy 100 Boeing jets, invest $550 billion in the U.S. and grant 90% profit sharing rights to the U.S.

Japan’s version has no formal obligation to purchase jets, no dollar amount on investment, and no agreement on profit allocation. Instead, it vaguely mentions “loans and guarantees”’, conditional on private sector appetite.

Japan is concerned by Section 232 of the U.S. Trade Expansion Act , which is a national security clause allowing the president to impose tariffs unilaterally. Trump has invoked it before, applying a 25% tariff on Japanese autos, which he now says he’ll “consider reducing to 15%.”

Treasury Secretary Scott Bessent has openly stated the deal will be reviewed every 3 months, with the threat that tariffs could snap back to 25% if Trump is displeased

The absence of a legal framework has triggered a rare cross-party backlash in the Japanese Diet. Members of the ruling LDP are questioning the wisdom of the deal and opposition leaders from the DPP and CDP have withdrawn support, due to the lack of binding commitments.

Meanwhile Commerce Secretary Lutnick is asking South Korea to present its best terms for negotiation and US and China are on day 2 in Stockholm, hoping to extend the 90 day suspension of reciprocal tariffs.

The story continues.