TQ Morning Briefing
Treasury told the market on Monday it needs to borrow more this quarter than it planned in May. At 8:30 this morning it says who pays for that, the bill market or the long bond. Iron Mountain holds its earnings call the same minute.
Tuesday bought everything. The Dow and the S&P both closed at records.
Chips led it. The semis index ran for a fourth straight session.
That is the rally in one line. Cheaper crude bought cheaper money.
Then the bell rang. AMD (AMD) beat on sales. It beat on earnings. It guided next quarter well above the street.
It also guided the margin flat. And it bought back none of its own stock.
Arista Networks (ANET) beat too. Its margin guide went up. So did the stock.
Same night. Same buildout. Opposite tape.
Futures have taken the hint. The Nasdaq is the only major index marginally lower this morning.
Market Implication
Tuesday's rally was borrowed from the oil market. Nothing else was doing the work. If the refunding pushes the long end back up, the loan gets called.
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The long end stopped trading data.
The thirty year Treasury yield has not moved on an economic release in weeks.
It trades one thing now. How much new debt is coming to market.
Japan just arranged to defend its currency without selling any of our long bonds. That took one seller off the table.
This morning the government says how much it plans to sell itself.
Treasury raised what it needs to borrow this quarter. The gap against its May plan was wide.
The funding plan has not changed.
Coupon auction sizes have not gone up in over two years. In May, the Treasury promised to hold them for at least the next several quarters.
Everything hangs on two of those words. "At least."
Dealers expect them to survive today.
If they do, the extra borrowing goes into bills. Short paper. Fast paper.
That is a choice about who carries the weight. Bills push it to the front end. Coupons push it to the back.
The back end is priced for the first answer.
Structural Setup
The auction sizes are not the news. Those two words are. Keep them and the fiscal weight sits at the front end, where the Fed sets the price. Drop them and the thirty year has to find new buyers before lunch.
Look at what led and Tuesday was a chip day.
Look at what all of it needed and it was a rate day.
Semis, industrials and small caps ran together.
Those three rarely move as one group. What they share is a bill that gets cheaper when the long end backs off.
Storage was the sharpest corner of it. SanDisk (SNDK) and Western Digital (WDC) both report tonight.
They sell the drives that sit under every model being trained. Their guides say whether that shortage is still getting worse.
Sector Read
Storage is the exception in this tape. Those guides tonight are the one input that does not care what the long end does. If storage guides up and the tape fades it anyway, demand stops being the variable. Everything that ran Tuesday is then holding a rate position it did not choose.
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Wall Street has been asking Treasury to drop its promise that auction sizes will hold.
RBC and JPMorgan have both said so publicly. Dropping it would buy room to sell more long bonds next year.
Treasury is expected to refuse. The reason is political.
Voters go to the polls in November. Signaling more long supply would lift yields into the vote.
So the promise stays for a reason that has nothing to do with what the government owes.
That pushes the borrowing into bills. Bills price off the Fed.
Three officials dissented last week. All of them wanted a hike. That had not happened in this direction since 2016.
Bills roll fast. A September hike would reprice a large part of the government's own funding cost within weeks. Not over a decade. Within weeks.
Watch Signal
The front end is the tell today. A bills heavy answer puts the borrowing exactly where three voters already want to raise the price. If the two year climbs on a refunding day, the September hike argument just picked up a second sponsor. That sponsor does not sit on the Committee.
Most people still file Iron Mountain (IRM) under paper storage.
It is a data center landlord now.
That business runs on one move. Borrow long. Build the hall. Sign a tenant for years. Keep the spread.
The spread is the whole company. One side of it gets set at an auction, not by any tenant.
So the quarter it reports this morning is the smaller half of the story. The larger half gets set while the call is running.
On that call an analyst will ask about leasing demand. Another will ask about the pipeline. Nobody will ask what the long end did while they were talking. That is the number the model turns on.
The Read
Levered landlords are the purest read on the long end. They cannot hedge their way out of a permanent repricing. A bills answer leaves the build pipeline's math intact. A hint of more long paper marks every hall leased at last year's cost of capital. The tenants are not the ones who wear that.
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Economic Data: MBA Mortgage Applications and Mortgage Rate for the week to July 31 at 7:00am ET. ADP Employment Change for July at 8:15am ET. Treasury Quarterly Refunding Announcement at 8:30am ET. S&P Global Composite PMI Final and Services PMI Final for July at 9:45am ET. ISM Services PMI, Business Activity, Employment, New Orders and Prices for July at 10:00am ET. EIA crude oil, gasoline and distillate stocks at 10:30am ET. 17 week bill auction at 11:30am ET.
Fed Speakers: Governor Lisa Cook at 4:05pm ET on the economic outlook.
Earnings: Eli Lilly (LLY), Walt Disney (DIS), Uber (UBER), CVS Health (CVS), Phillips 66 (PSX), GlobalFoundries (GFS), Iron Mountain (IRM) before open | AppLovin (APP), Realty Income (O), McKesson (MCK), Occidental Petroleum (OXY), MetLife (MET), Allstate (ALL), DoorDash (DASH), eBay (EBAY), Expedia (EXPE), Motorola Solutions (MSI), Western Digital (WDC), Sandisk (SNDK) after close.
Overnight: Nikkei +3.66% | Shanghai Composite +1.47% | FTSE +0.4% | DAX -0.02%
Two prints land fifteen minutes apart this morning.
At 8:15 the private payroll count says how much labor firms still want. At 8:30 the refunding says where the borrowing lands.
One is about the economy. The other is about the bill for running it.
For two years those had the same answer. A soft labor market meant lower rates, and lower rates meant cheaper borrowing.
They can split today. A weak payroll count with a bills heavy plan is the old world. A weak count alongside a hint of more long paper is a different one.
The second version is the one nobody is holding a position for.