Bond Market Update

Rising Ahead of FOMC Meeting

• U.S. Treasuries began the week with gains across the cure, lifting the long bond toward last week's high ahead of tomorrow's start of a two-day FOMC meeting that is expected to conclude with a 25-basis point rate cut on Wednesday. The trading day started in flat fashion after a night that saw the release of weak August growth figures from China that fueled speculation about more stimulus from Chinese authorities. Treasuries climbed through the initial 90 minutes of action with some assistance from an Empire State Manufacturing survey for September (-8.7; Briefing.com consensus 3.0; prior 11.9), which showed an unexpected contraction in activity. The 10-yr note and shorter tenors remained near their morning highs into the close while the long bond hit a fresh high at noon, stopping just shy of its best level from Thursday. Crude oil climbed back above $63/bbl while the U.S. Dollar Index fell 0.3% to 97.31.
• Yield Check:
  • 2-yr: -3 bps to 3.53%
  • 3-yr: -3 bps to 3.50%
  • 5-yr: -2 bps to 3.60%
  • 10-yr: -3 bps to 4.03%
  • 30-yr: -2 bps to 4.66%

• News:
  • Chinese trade officials are scheduled to meet with a U.S. delegation in Spain tomorrow.
  • China launched two investigations into U.S. trade policy ahead of tomorrow's planned meeting in Spain, according to Reuters.
  • Fitch lowered France's credit rating to A+ from AA- and revised the outlook to Stable from Negative due to high debt, a weak fiscal standing, and ongoing political uncertainty.
  • Fitch raised Portugal's credit rating to A from A- and revised the outlook to Stable from Positive.
  • Standard & Poor's raised Spain's credit rating to A+ from A with a Stable outlook.
  • European Central Bank policymaker Kazimir said that rates are in a good place and there is no need to react to "tiny deviations" from target.
  • Italy's finance ministry expects 0.6% growth in 2025, followed by 0.8% growth in 2026.
  • China's August House Prices were down 2.5% yr/yr (last -2.8%). August Retail Sales rose 3.4% yr/yr (expected 3.8%; last 3.7%), August Industrial Production was up 5.2% yr/yr (expected 5.7%; last 5.7%); rising 6.2% year-to-date (last 6.3%). August Fixed Asset Investment was up 0.5% yr/yr (expected 1.5%; last 1.6%), and August Unemployment Rate rose to 5.3% from 5.2% (expected 5.2%).
  • South Korea's August trade surplus reached $6.51 bln, as expected (last surplus of $9.08 bln) as imports fell 4.1% yr/yr (expected -4.0%; last 3.3%) and exports rose 1.2% yr/yr (expected 1.3%; last 4.3%).
  • Hong Kong's Q2 Industrial Production increased 0.8% yr/yr (last 0.7%) and Q2 PPI was up 4.0% yr/yr (last 4.8%).
  • India's August WPI Inflation was up 0.52% yr/yr (expected 0.30%; last -0.58%) and August trade deficit reached $26.49 bln (last deficit of $27.35 bln).
  • Eurozone's July trade surplus reached EUR12.4 bln (expected EUR11.7 bln; last EUR8.0 bln).
  • Germany's August WPI was down 0.6% m/m (expected 0.2%; last -0.1%) but up 0.7% yr/yr (last 0.5%).
  • Italy's July trade surplus reached EUR7.908 bln (expected surplus of EUR5.500 bln; last surplus of EUR5.384 bln.
• Today's Data:
  • The Empire State Manufacturing survey fell to -8.7 in September (Briefing.com consensus 3.0) from 11.9 in August.
• Commodities:
  • WTI crude: +1.0% to $63.31/bbl
  • Gold: +0.9% to $3719.10/ozt
  • Copper: +1.5% to $4.72/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1769
  • GBP/USD: +0.4% to 1.3605
  • USD/CNH: -0.1% to 7.1187
  • USD/JPY: -0.2% to 147.32
• The Day Ahead:
  • 8:30 ET: August Retail Sales (Briefing.com consensus 0.3%; prior 0.5%), Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.3%), August Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.3%), Export Prices (prior 0.1%), and Export Prices ex-agriculture (prior 0.1%
  • 9:15 ET: August Industrial Production (Briefing.com consensus 0.0%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.4%; prior 77.5%)
  • 10:00 ET: July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 33; prior 32)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results

Gains Defended

• U.S. Treasuries hover just below their morning highs, having spent the past couple hours of trade in a slim sideways range. Treasuries climbed to highs during the first 90 minutes of today's session and they have largely defended their gains since then. The 2-yr note has seen a bit more backtracking than longer tenors, though its yield is still within a basis point of today's early low. This makes for a quiet start to the week that is expected to feature a 25-basis point rate cut on Wednesday and likely hints from Fed Chairman Powell that more easing will take place before the end of the year.
• Yield Check:
  • 2-yr: -3 bps to 3.53%
  • 3-yr: -3 bps to 3.50%
  • 5-yr: -2 bps to 3.60%
  • 10-yr: -3 bps to 4.03%
  • 30-yr: -3 bps to 4.65%

Modest Gains in Early Action

• U.S. Treasuries hold modest gains after rising off their opening lows. The market started the day in generally flat fashion with some relative strength up front. The entire complex rose through the initial 30 minutes of action while recent trade has seen a sideways drift just below highs. Today's lone economic datapoint, the Empire State Manufacturing survey fell to -8.7 in September (Briefing.com consensus 3.0) from 11.9 in August. Equities have started the day on a solid note with the Nasdaq (+0.7%) leading the S&P 500 (+0.4%).
• Yield Check:
  • 2-yr: -3 bps to 3.53%
  • 3-yr: -3 bps to 3.50%
  • 5-yr: -2 bps to 3.61%
  • 10-yr: -2 bps to 4.05%
  • 30-yr: -2 bps to 4.66%

Mixed Start Ahead

• U.S. Treasuries are on track for a modestly lower start in longer tenors after last week's show of relative strength while shorter tenors are ahead. Treasury futures had a sleepy start to the new week, drifting inside a sideways range with a slight downward bias that has been largely reversed over the past few hours. Overall trading volume was on the light side to begin the week due to a holiday closure in Japan. Elsewhere in Asia, China reported underwhelming growth figures for August, which invited some speculation about additional stimulus measures being implemented. On a somewhat related note, Chinese trade officials are scheduled to meet with a U.S. delegation in Spain tomorrow. Economic data flow will slow notably during the U.S. session with the economic calendar limited to the 8:30 ET release of the Empire State Manufacturing Survey (Briefing.com consensus 3.0; prior 11.9) for September. Crude oil holds a modest gain while the U.S. Dollar Index is down 0.2% at 97.40.
• Yield Check:
  • 2-yr: -1 bp to 3.55%
  • 3-yr: -1 bp to 3.52%
  • 5-yr: UNCH at 3.63%
  • 10-yr: +1 bp to 4.07%
  • 30-yr: +1 bp to 4.69%

• News:
  • China launched two investigations into U.S. trade policy ahead of tomorrow's planned meeting in Spain, according to Reuters.
  • Fitch lowered France's credit rating to A+ from AA- and revised the outlook to Stable from Negative due to high debt, a weak fiscal standing, and ongoing political uncertainty.
  • Fitch raised Portugal's rating to A from A- and revised the outlook to Stable from Positive.
  • Standard & Poor's raised Spain's rating to A+ from A with a Stable outlook.
  • European Central Bank policymaker Kazimir said that rates are in a good place and there is no need to react to "tiny deviations" from target.
  • Italy's finance ministry expects 0.6% growth in 2025, followed by 0.8% growth in 2026.
  • China's August House Prices were down 2.5% yr/yr (last -2.8%). August Retail Sales rose 3.4% yr/yr (expected 3.8%; last 3.7%), August Industrial Production was up 5.2% yr/yr (expected 5.7%; last 5.7%); rising 6.2% year-to-date (last 6.3%). August Fixed Asset Investment was up 0.5% yr/yr (expected 1.5%; last 1.6%), and August Unemployment Rate rose to 5.3% from 5.2% (expected 5.2%).
  • South Korea's August trade surplus reached $6.51 bln, as expected (last surplus of $9.08 bln) as imports fell 4.1% yr/yr (expected -4.0%; last 3.3%) and exports rose 1.2% yr/yr (expected 1.3%; last 4.3%).
  • Hong Kong's Q2 Industrial Production increased 0.8% yr/yr (last 0.7%) and Q2 PPI was up 4.0% yr/yr (last 4.8%).
  • India's August WPI Inflation was up 0.52% yr/yr (expected 0.30%; last -0.58%) and August trade deficit reached $26.49 bln (last deficit of $27.35 bln).
  • Eurozone's July trade surplus reached EUR12.4 bln (expected EUR11.7 bln; last EUR8.0 bln).
  • Germany's August WPI was down 0.6% m/m (expected 0.2%; last -0.1%) but up 0.7% yr/yr (last 0.5%).
  • Italy's July trade surplus reached EUR7.908 bln (expected surplus of EUR5.500 bln; last surplus of EUR5.384 bln.
• Commodities:
  • WTI Crude: +0.4% to $62.93/bbl
  • Gold: -0.1% to $3681.90/ozt
  • Copper: +0.3% to $4.665/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1763
  • GBP/USD: +0.4% to 1.3616
  • USD/CNH: UNCH at 7.1230
  • USD/JPY: -0.2% to 147.40
• Data out Today:
  • 8:30 ET: September Empire State Manufacturing Survey (Briefing.com consensus 3.0; prior 11.9)

Shorter Tenors Trim September Gains

• U.S. Treasuries retreated on Friday with longer tenors leading the slide, though even with today's underperformance, 10s and 30s added to their gains from the first week of September while 5s and shorter tenors finished the week in negative territory. The trading day started in the red after a night that featured fresh record highs in Japan's Nikkei and South Korea's Kospi. The market received a sizable batch of data with China reporting a rebound in August social financing while a flat July GDP reading from the U.K. invited concerns about stagflation taking hold. The data flow slowed during the U.S. session, as the market only received the preliminary September Consumer Sentiment Survey from the University of Michigan (55.4; Briefing.com consensus 59.2). The survey showed weakening sentiment for the second month in a row with five-year inflation expectations jumping to 3.9% from 3.5% in August. Treasuries added to their initial losses in morning trade, reaching lows around 11:30 ET. The rest of the day saw a slow rebound off those levels with 5s and shorter tenors returning to their opening levels while longer tenors finished a bit behind, but the long bond still logged a strong gain for the week. Crude oil finished the week with a slim gain of under $1/bbl while the U.S. Dollar Index finished flat at 97.56, shedding 0.2% for the week.
• Yield Check:
  • 2-yr: +3 bps to 3.56% (+5 bps this week)
  • 3-yr: +4 bps to 3.53% (+5 bps this week)
  • 5-yr: +5 bps to 3.63% (+5 bps this week)
  • 10-yr: +5 bps to 4.06% (-3 bps this week)
  • 30-yr: +3 bps to 4.68% (-10 bps this week)

• News:
  • The U.S. and Japan reaffirmed their commitment to allowing the market to determine exchange rates.
  • The Chinese government will assist local governments with more than $1 trillion in bills.
  • Securities Times expects the People's Bank of China to resume buying bonds in Q4.
  • European Central Bank policymaker Patsalides cautioned that the next policy change could be a rate hike, and that there is no current need for action unless there is a shock, while other ECB policymakers hinted at the potential for another cut by the end of the year.
  • China's August New Loans reached CNY590.0 bln (expected CNY700.0 bln; last -CNY50.0 bln), August Outstanding Loans grew 6.8% yr/yr (expected 6.9%; last 6.9%), and August total social financing reached CNY2.57 trln (expected CNY2.46 trln; last CNY1.13 trln).
  • Japan's July Industrial Production was down 1.2% m/m (expected -1.6%; last 2.1%) and Capacity Utilization was down 1.1% m/m (last -1.8%).
  • India's August CPI was up 2.07% yr/yr (expected 2.10%; last 1.61%).
  • New Zealand's August Business PMI hit 49.9 (last 52.8). August Electronic Card Retail Sales rose 0.7% m/m (last 0.2%), increasing 0.9% yr/yr (last 1.7%).
  • Germany's August CPI was up 0.1% m/m, as expected (last 0.3%), rising 2.2% yr/yr, as expected (last 2.0%).
  • U.K.'s July GDP was unchanged m/m, as expected (last 0.4%), rising 1.4% yr/yr (expected 1.5%; last 1.4%).
  • France's August CPI was up 0.4% m/m, as expected (last 0.2%), rising 0.9% yr/yr, as expected (last 1.0%).
  • Italy's Q2 Unemployment Rate rose to 6.3% from 6.1% (expected 6.1%).
  • Spain's August CPI was unchanged m/m, as expected (last -0.1%), rising 2.7% yr/yr, as expected (last 2.7%). August Core CPI was up 2.4% yr/yr, as expected (last 2.3%).
• Today's Data:
  • The preliminary University of Michigan Consumer Sentiment reading for September checked in at 55.4 (Briefing.com consensus: 59.2) versus the final reading of 58.2 for August. In the same period a year ago, the index stood at 70.1.
    • The key takeaway from the report is that the pullback in consumer sentiment was paced by fading economic views among lower-income and middle-income consumers.
• Commodities:
  • WTI crude: +0.5% to $62.67/bbl
  • Gold: +0.4% to $3686.50/ozt
  • Copper: -0.2% to $4.65/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1737
  • GBP/USD: -0.1% to 1.3567
  • USD/CNH: +0.1% to 7.1240
  • USD/JPY: +0.2% to 147.50
• The Week Ahead:
  • Monday: September Empire State Manufacturing Survey (Briefing.com consensus 3.0; prior 11.9) at 8:30 ET
  • Tuesday: August Retail Sales (Briefing.com consensus 0.3%; prior 0.5%), Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.3%), August Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.3%), Export Prices (prior 0.1%), and Export Prices ex-agriculture (prior 0.1%) at 8:30 ET; August Industrial Production (Briefing.com consensus 0.0%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.4%; prior 77.5%) at 9:15 ET; July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 33; prior 32) at 10:00 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 9.2%) at 7:00 ET; August Housing Starts (Briefing.com consensus 1.375 mln; prior 1.428 mln) and Building Permits (Briefing.com consensus 1.370 mln; prior 1.362 mln) at 8:30 ET; weekly crude oil inventories (prior +3.94 mln) at 10:30 ET; and September FOMC Rate Decision (Briefing.com consensus 4.00-4.25%; prior 4.25-4.50%)
  • Thursday: September Philadelphia Fed Survey (Briefing.com consensus 3.0; prior -0.3), weekly Initial Claims (Briefing.com consensus 245,000; prior 263,000), and Continuing Claims (prior 1.939 mln) at 8:30 ET; August Leading Indicators (Briefing.com consensus -0.1%; prior -0.1%) at 10:00 ET; weekly natural gas inventories (prior +71 bcf) at 10:30 ET; and July Net Long-Term TIC Flows (prior $150.8 bln)
  • Friday: Nothing of note