CHINA: Bond Futures Mixed as 10-Yr Drops

The TYU5 range has been 111-23 to 111-26 during the Asia-Pacific session. It last changed hands at 111-25, down 0-03+ from the previous close. All eyes on the US CPI tonight to confirm if there any signs of inflation taking hold.

• The US 2-year yield is trading around 3.768%.
• The US 10-year yield is trading around 4.283%.
• The 10-year yield had a powerful move lower in reaction to the NFP data, breaking below its 4.30% pivot within the wider range 4.10% - 4.65%. This now turns momentum lower in yields and you could expect buyers of treasuries on bounces back towards 4.30/35% now looking to initially test the 4.10% area. 
• MNI US CPI Preview: High Early Bar To September Fed Hold. The CPI report for July is released on Tuesday Aug 12, at 0830ET. Consensus sees core CPI inflation at a seasonally adjusted 0.3% M/M in June and unrounded analyst estimates broadly echo this with a median 0.32% M/M. It would mark a further acceleration from 0.23% M/M in June and 0.13% M/M in May for its fastest pace since January, with the latest firming seen coming from core goods inflation doubling to 0.4% M/M. 
• Truflation on X: “July BLS CPI FORECAST: 2.8% YoY. Tariffs are biting, the labor market is cooling, and consumers are wobbling, pointing to slower growth. Could this signal upside risks to inflation? July highlights, goods prices accelerating as tariffs pass through; services cooling (but still supported by wage growth). Biggest upward contributors: Education +0.7% MoM (+2.9% YoY) · Utilities +0.6% (+4.6%) · Health +0.5% (+3.0%) · Alcohol & Tobacco +0.6% (+3.1%). Biggest downward contributors: Food −0.6% MoM (+2.7% YoY) · Housing −0.5% (+0.8% YoY)
• Data/Events:   NFIB Small Business Optimism, CPI, Federal Budget Balance

Fig 1: 10-Year US Yield 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P

After falling 1.6% on Monday, gold prices are 0.3% higher at $3350.7/oz during Tuesday’s APAC session following US President Trump’s post that “Gold will not be Tariffed!”, although this is yet to be formally announced. The market had been concerned following a customs ruling that certain gold imports would face duties, which would have impacted the smooth functioning of the market. Attention now turns to July US CPI data out later today and will be monitored for signs of higher tariffs being passed on. 

• Gold reached a high of $3357.48 early in the session, below initial resistance at $3409.2, 8 August high. 
• Silver is also higher up 0.7% to $37.88, close to the intraday high but continuing to trade below initial resistance at $39.655.
• Equities are generally stronger with the S&P e-mini up 0.1%, Nikkei +2.5% but the Hang Seng is flat. Oil prices are up with WTI +0.3% to $64.14/bbl. Copper is 0.6% higher.
• US July CPI data are forecast to show both core and headline ticking up 0.1pp to 3.0% and 2.8% respectively (see MNI US CPI Preview). A higher-than-expected print would pressure gold prices. The market has around an 85% chance of a rate cut for the Fed’s September meeting, which would support bullion.
• July US NFIB small business optimism, real earnings and budget data are also released, as well as UK labour data and euro area/German August ZEW sentiment. The Fed’s Barkin and Schmid speak on the economy. 

• For a second straight day, bond futures are down in China edging yields higher.  
• The 10-year bond future is down -0.9 today at 108.37, after closing yesterday down -0.14.  The 10-year remains well below all major moving averages, the closest being the 20-day EMA of 108.55.

• The 2-year bond future is down -0.02 at 102.33.  With the modest rally at the end of last week, the 2-year drew near to the 20-day EMA of 102.37 but has turned away with today's falls. 

  Fig 1. China's 2-year bond future vs 20, 50, 100 and 200 day moving average. 

source: Bloomberg Finance LP  /  MNI

• The weakness has seen the CGB10yr move higher to 1.73%.