Bond Market Update

Data Recon

• The Producer Price Index for final demand was up 0.3% month-over-month (Briefing.com consensus: 0.4%) following an upwardly revised 1.4% increase (from 1.3%) in September. Excluding food and energy, the index for final demand rose 0.3% month-over-month, as expected, following an upwardly revised 0.8% increase (from 0.7%) in September. On a year-over-year basis, the index for final demand was up 6.5%--the largest increase since November 2022--versus 6.3% in September. Excluding food and energy, the index for final demand was up 5.0%, unchanged from September.
  • The key takeaway from the report is that inflation at the wholesale level is still a big problem. The October report is not the source of comfort the initial reaction has made it out to be.
• Yield Check:
  • 2-yr: -3 bps to 4.85%
  • 3-yr: UNCH at 4.91%
  • 5-yr: +2 bps to 4.96%
  • 10-yr: +3 bps to 5.14%
  • 30-yr: +3 bps to 5.47%

Longer Tenors Extend Thursday Losses

• U.S. Treasuries are on track for a mixed start with relative strength seen in shorter tenors after yesterday's underperformance while longer tenors lag. Treasury futures saw some selling in longer tenors shortly after yesterday's cash close, followed by a sideways drift through the rest of the night while the short end climbed slowly through the night. Elsewhere, other sovereign debt faced pressure across the board. Yesterday's action was underscored by growing expectations for a 50-basis point rate hike in December, but that probability receded a bit this morning after New York Fed President Williams acknowledged that the Fed has more work to do, but also said that there is time to gather more information and that longer-term inflation expectations remain anchored. Inflation will remain in focus this morning with the market set to receive October PPI (Briefing.com consensus 0.3%; prior 1.3%) and Core PPI (Briefing.com consensus 0.2%; prior 0.7%) at 8:30 ET. Crude oil hovers near $88.50/bbl while the U.S. Dollar Index is up 0.1% at 103.30, its highest level since April 2025.
• Yield Check:
  • 2-yr: -1 bp to 4.87%
  • 3-yr: +2 bps to 4.93%
  • 5-yr: +3 bps to 4.98%
  • 10-yr: +5 bps to 5.15%
  • 30-yr: +5 bps to 5.48%

• News:
  • Goldman Sachs expects China's economy to grow 4.5% in 2027.
  • Japan's Prime Minister Takaichi is reportedly leaning against implementing a tax increase to fund defense spending.
  • French President Macron and German Chancellor Merz are in favor of Pablo Hernandez de Cos becoming the next president of the European Central Bank. Mr. de Cos is currently the general manager of the Bank for International Settlements.
  • Germany plans to borrow more than EUR200 bln in 2027, representing the second highest annual total since World War II.
  • China's October New Loans CNY-100.0 bln (expected CNY80.0 bln; prior CNY1,080.0 bln); Total Social Financing CNY1,150.0 bln (expected CNY1,420.0 bln; prior CNY3,550.0 bln). October M2 Money Stock +7.1% yr/yr (expected +7.2%; prior +7.2%) and Outstanding Loan Growth +4.7% yr/yr (expected +4.8%; prior +4.8%).
  • Hong Kong's Q3 GDP +1.9% qtr/qtr (expected +1.9%; prior -0.7%) and +5.2% yr/yr (expected +5.2%; prior +4.2%).
  • India's October Exports USD49.47 bln (prior USD44.40 bln); Imports USD89.35 bln (prior USD74.61 bln); Trade Balance USD-39.88 bln (prior USD-30.21 bln).
  • South Korea's September M2 Money Supply +7.0% yr/yr (prior +7.2%) and M3 Money Supply KRW6,393.8 bln (prior KRW6,368.9 bln).
  • November Thomson Reuters/Ipsos Consumer Sentiment: China 70.44 (prior 69.29); India 64.54 (prior 64.32); South Korea 43.00 (prior 44.06); Australia 44.06 (prior 45.62); Japan 37.67 (prior 38.96).
  • Eurozone Q3 GDP +0.4% qtr/qtr (expected +0.4%; prior +0.6%) and +1.3% yr/yr (expected +1.3%; prior +1.2%). Q3 Employment Change +0.1% qtr/qtr (expected +0.2%; prior +0.1%) and +0.5% yr/yr (expected +0.4%; prior +0.5%). September Trade Balance EUR-10.3 bln (expected EUR-4.5 bln; prior EUR-16.6 bln).
  • Germany's October WPI +0.4% m/m (expected +0.4%; prior +1.9%) and +8.8% yr/yr (prior +8.7%).
  • France's October CPI +0.4% m/m (expected +0.4%; prior -0.3%) and +3.4% yr/yr (expected +3.4%; prior +3.1%); HICP +0.4% m/m (expected +0.4%; prior -0.3%) and +3.7% yr/yr (expected +3.8%; prior +3.8%).
  • Spain's October CPI +0.6% m/m (expected +0.6%; prior +0.3%) and +4.9% yr/yr (expected +4.9%; prior +4.9%); Core CPI +3.1% yr/yr (expected +3.1%; prior +3.1%).
  • Switzerland's October PPI +0.9% m/m (expected +0.2%; prior +0.3%) and +0.9% yr/yr (prior -0.2%).
  • Italy's September Trade Balance EUR2.083 bln (expected EUR2.840 bln; prior EUR1.824 bln).
• Commodities:
  • WTI Crude: -0.2% to $88.55/bbl
  • Gold: +0.2% to $3894.10/ozt
  • Copper: -0.6% to $6.159/lb
• Currencies:
  • EUR/USD: UNCH at 1.1051
  • GBP/USD: -0.1% to 1.3227
  • USD/CNH: UNCH at 6.6741
  • USD/JPY: +0.1% to 160.03
• Data out Today:
  • 8:30 ET: October PPI (Briefing.com consensus 0.3%; prior 1.3%) and Core PPI (Briefing.com consensus 0.2%; prior 0.7%)
  • 10:30 ET: Weekly natural gas inventories (prior +77 bcf)

Pressured by Growing Rate Hike Odds

• U.S. Treasuries faced heavy selling on Thursday after returning from a midweek closure, lifting yields on the 10-yr note and the 30-yr bond above their 50-day moving averages to levels last seen three weeks ago. The trading day started with losses that were paced by the belly of the curve, followed by a brief rebound attempt that failed well before the complex reached closing levels from Tuesday. Treasuries notched intraday highs about an hour after the cash start with yields on 10s and 30s dipping below their respective 50-day moving averages, but the ensuing slide that continued into the early afternoon lifted yields on 5s and longer tenors to their highest levels in three weeks while the 2-yr yield hit a four-week high as the market's expectations for a 50-basis point rate hike in December climbed above 15%, essentially doubling from levels seen on Tuesday. Crude oil faced some early volatility but eventually climbed back above its 200-day moving average (87.73), adding to the intraday pressure. The U.S. Dollar Index rose 0.3% to 103.18, reaching its highest level since early April.
• Yield Check:
  • 2-yr: +14 bps to 4.88%
  • 3-yr: +14 bps to 4.91%
  • 5-yr: +14 bps to 4.95%
  • 10-yr: +12 bps to 5.10%
  • 30-yr: +8 bps to 5.43%

• News:
  • The Federal Reserve released its meeting schedule for 2027, designating the October meeting as a Monetary Policy Strategy meeting.
  • Anthropic (ANT) plans to make its debut on November 20.
  • NVIDIA CEO Huang resigned after last night's report in The New York Times about an affair within the company.
  • The People's Bank of China vowed to safeguard stable stock market operations in its monetary policy implementation report for Q3.
  • Japan's October PPI +0.7% m/m (expected +0.3%; prior -0.2%) and +7.1% yr/yr (expected +6.5%; prior +6.8%).
  • Australia's November MI Inflation Expectations 5.3% (prior 5.3%).
  • India's October CPI +6.09% yr/yr (expected +5.93%; prior +5.54%).
  • U.K. Q3 GDP +0.7% qtr/qtr (expected +0.7%; prior +0.5%) and +1.9% yr/yr (expected +1.9%; prior +1.4%). September GDP +0.2% m/m (expected 0.0%; prior 0.0%) and +2.1% yr/yr (expected +1.9%; prior +2.0%). September Manufacturing Production +0.7% m/m (expected -0.5%; prior +0.7%) and +4.4% yr/yr (expected +3.8%; prior +2.5%). September Industrial Production +0.3% m/m (expected -0.4%; prior +0.7%) and +3.1% yr/yr (expected +2.9%; prior +1.1%). September Construction Output +0.8% m/m (expected 0.0%; prior -0.5%) and -1.5% yr/yr (expected -2.1%; prior -1.9%). Q3 Business Investment +0.4% qtr/qtr (expected +0.4%; prior +1.8%) and +3.0% yr/yr (prior +5.2%). September Trade Balance GBP-22.29 bln (expected GBP-19.20 bln; prior GBP-19.61 bln). November
  • Thomson Reuters/Ipsos Consumer Sentiment: U.K. 44.0 (prior 45.3); Germany 41.95 (prior 42.37); France 37.90 (prior 37.63); Italy 41.40 (prior 42.99); Spain 47.55 (prior 45.22).
• Today's Data:
  • Initial jobless claims for the week ending November 7 increased by 9,000 to 200,000 (Briefing.com consensus: 195,000). Continuing jobless claims for the week ending October 31 decreased by 20,000 to 1.697 million.
    • The key takeaway from the report is that initial jobless claims continue to run at low levels that are consistent with an otherwise solid demand environment.
  • Existing home sales decreased 5.5% month-over-month in October to a seasonally adjusted annual rate of 3.75 million (Briefing.com consensus 3.94 million) from a downwardly revised 3.97 million (from 3.99 million) in September. Sales were down 8.8% on a year-over-year basis.
    • The key takeaway from the report is that home sales fell to their lowest level since August 2010, with year-over-year declines in all four regions, as rising mortgage rates curtailed buyer demand.
  • The U.S. Treasury reported a $404.0 bln deficit for October (Briefing.com consensus -$300.0 bln).
    • The Treasury budget is not seasonally adjusted so the October deficit cannot be compared to the $27 bln deficit in September. The deficit a year ago hit $284.0 bln.
  • Weekly crude oil inventories increased by 4.657 mln barrels after decreasing by 865,000 barrels a week ago.
  • $25 bln 30-year Treasury bond auction results (prior 12-auction average):
    • High yield: 5.441% (5.005%).
    • Bid-to-cover: 2.36 (2.43).
    • Indirect bid: 68.1% (68.3%).
    • Direct bid: 20.5% (21.3%).
• Commodities:
  • WTI crude: +2.8% to $88.79/bbl
  • Gold: -2.8% to $3886.30/ozt
  • Copper: -1.4% to $6.20/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1055
  • GBP/USD: -0.3% to 1.3234
  • USD/CNH: +0.1% to 6.6739
  • USD/JPY: +0.1% to 159.84
• The Day Ahead:
  • 8:30 ET: October PPI (Briefing.com consensus 0.3%; prior 1.3%) and Core PPI (Briefing.com consensus 0.2%; prior 0.7%)
  • 10:30 ET: Weekly natural gas inventories (prior +77 bcf)

Auction Reaction

• U.S. Treasuries trade on their lows, showing sharp losses across the curve, after a steady extension of their initial losses. The market attempted to bounce from its lower start during the initial hour, but the bounce ran into resistance once the 5-yr yield approached its 50-day moving average (4.858%) and long bond approached its closing level from Tuesday. The next three hours saw steady selling that also lifted yields on 10s and 30s above their respective 50-day moving averages to levels from three weeks ago. Even with today's run up in yields, the just completed $25 bln 30-yr bond auction met weak demand, completing this week's uninspiring note and bond auction slate. The sale drew a high yield of 5.441%, which tailed the when-issued yield by 0.4 basis points while the bid-to-cover ratio (2.36x vs 2.43x average) and indirect takedown (68.1% vs 68.3% average) were below average.
• Yield Check:
  • 2-yr: +13 bps to 4.87%
  • 3-yr: +15 bps to 4.92%
  • 5-yr: +14 bps to 4.95%
  • 10-yr: +13 bps to 5.11%
  • 30-yr: +9 bps to 5.44%

Treasury Auction Results

• $25 bln 30-year Treasury bond auction:
  • Auction results:
    • High yield: 5.441% (When-Issued: 5.437%)
    • Bid-to-cover: 2.36
    • Indirect bid: 68.1%
    • Direct bid: 20.5%
  • Average results of previous 12 auctions:
    • High yield: 5.005%
    • Bid-to-cover: 2.43
    • Indirect bid: 68.3%
    • Direct bid: 21.3%