Bond Market Update

Recent Gains Trimmed

• U.S. Treasuries ended the Thanksgiving week on a modestly lower note, giving back some of their gains from the first half of the week. The Treasury complex was little changed at the start of the cash session after an overnight outage at the CME crippled futures trading until the early morning. Treasuries began sliding immediately after the open even though the market did not receive any data. The selling continued until the late morning, lifting yields toward their highs from Wednesday. The selling lifted the 30-yr yield back above its 50-day moving average (4.679%), but a midday rise off lows, pressured the 30-yr yield back below that mark. Even with today's retreat, yields remain near their lowest levels in a month thanks to the recent bounce in December rate cut expectations. Crude oil extended this week's gain to $1.38/bbl, or 2.4%, while the U.S. Dollar Index slipped 0.1% to 99.47, losing 0.7% for the week.
• Yield Check:
  • 2-yr: +1 bp to 3.49% (-2 bps this week)
  • 3-yr: +2 bps to 3.49% (-1 bp this week)
  • 5-yr: +3 bps to 3.60% (-2 bps this week)
  • 10-yr: +2 bps to 4.02% (-4 bps this week)
  • 30-yr: +2 bps to 4.67% (-5 bps this week)

• News:
  • Japan's Ministry of Finance said that primary dealers want to see more issuance of 2-, 5-, and 10-yr JGBs and a reduced supply of ultra long JGBs.
  • A Bank of Japan policymakers said that underlying inflation remains below the 2.0% target even after years of above-target CPI readings.
  • Japan's November Tokyo CPI was up 2.7% yr/yr, as expected (last 2.8%) and Tokyo Core CPI was up 2.8% yr/yr (expected 2.7%; last 2.8%). October Retail Sales rose 1.7% yr/yr (expected 0.8%; last 0.2%), October Industrial Production rose 1.4% m/m (expected -0.5%; last 2.6%), and October Unemployment Rate remained at 2.6% (expected 2.5%). October jobs/applications ratio fell to 1.18 from 1.20 (expected 1.20). October Housing Starts were up 3.2% yr/yr (expected -5.0%; last -7.3%) and Construction Orders were down 10.1% yr/yr (last 34.7%).
  • South Korea's October Industrial Production fell 4.0% m/m (expected -0.2%; last -1.1%), dropping 8.1% yr/yr (last 11.9%). October Retail Sales rose 3.5% m/m (last -0.1%) and October Service Sector Output was down 0.6% m/m (last 2.0%).
  • India's Q2 GDP expanded 8.2% yr/yr (expected 7.3%; last 7.8%).
  • Australia's October Private Sector Credit was up 0.7% m/m (expected 0.6%; last 0.6%) and Housing Credit was up 0.6% m/m (last 0.6%).
  • Germany's October Import Price Index was up 0.2% m/m (expected 0.0%; last 0.2%), but down 1.4% yr/yr (expected -1.6%; last -1.0%). October Retail Sales fell 0.3% m/m (expected 0.1%; last 0.3%) but were up 0.9% yr/yr (last 3.4%). November unemployment increased by 1,000 (expected 4,000; last -2,000) and Unemployment Rate remained at 6.3%, as expected.
  • France's flash November CPI was down 0.1% m/m (expected 0.0%; last 0.1%) and up 0.9% yr/yr (expected 1.0%; last 0.9%). October PPI was unchanged m/m (last -0.1%), falling 0.8% yr/yr (last 0.1%). Q3 GDP expanded 0.5% qtr/qtr, as expected (last 0.3%), growing 0.9% yr/yr, as expected (last 0.7%). October Consumer Spending was up 0.4% m/m (expected 0.3%; last 0.3%). Q3 Nonfarm Payrolls were unchanged qtr/qtr (expected -0.3%; last 0.2%). October jobseeker total rose to 3.151 mln from 3.082 mln.
  • Italy's Q3 GDP expanded 0.1% qtr/qtr (expected 0.0%; last -0.1%), growing 0.6% yr/yr (expected 0.4%; last 0.4%). November CPI was down 0.2% m/m (expected -0.1%; last -0.3%) but up 1.2% yr/yr (last 1.2%).
  • Spain's flash November CPI was up 0.2% m/m (last 0.7%), rising 3.0% yr/yr, as expected (last 3.1%). November Core CPI was up 2.6% yr/yr (last 2.5%). October Retail Sales rose 3.8% yr/yr (last 4.1%). September Current Account surplus reached EUR1.87 bln (last surplus of EUR5.08 bln).
  • Swiss Q3 GDP decreased 0.5% qtr/qtr (expected -0.4%; last 0.2%) but was up 0.5% yr/yr (last 1.3%). November KOF Leading Indicators rose to 101.7 from 101.5 (expected 100.9).
• Commodities:
  • WTI crude: +1.3% to $59.44/bbl
  • Gold: +1.3% to $4255.70/ozt
  • Copper: +1.5% to $5.27/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1601
  • GBP/USD: UNCH at 1.3237
  • USD/CNH: -0.1% to 7.0687
  • USD/JPY: -0.1% to 156.13
• The Week Ahead:
  • Monday: Final November S&P Global U.S. Manufacturing PMI (prior 52.5%) at 9:45 ET; September Construction Spending (Briefing.com consensus 0.0%) and November ISM Manufacturing Index (Briefing.com consensus 49.0%; prior 48.7%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 0.2%) at 7:00 ET; November ADP Employment Change (Briefing.com consensus 20,000; prior 42,000) at 8:15 ET; September Import/Export Prices at 8:30 ET; September Industrial Production (Briefing.com consensus 0.1%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.4%) at 9:15 ET; final November S&P Global U.S. Services PMI (prior 54.8) at 9:45 ET; November ISM Services (Briefing.com consensus 52.4%; prior 52.4%) at 10:00 ET; and weekly crude oil inventories (prior +2.77 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 220,000; prior 216,000), Continuing Claims (prior 1.960 mln), and October Trade Balance (Briefing.com consensus -$61.3 bln) at 8:30 ET; and weekly natural gas inventories (prior -11 bcf) at 10:30 ET
  • Friday: September Personal Income (Briefing.com consensus 0.4%; prior 0.4%), Personal Spending (Briefing.com consensus 0.4%; prior 0.6%), PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), October Factory Orders (Briefing.com consensus -0.3%), and preliminary December University of Michigan Consumer Sentiment (Briefing.com consensus 52.0; prior 51.0) at 10:00 ET; and October Consumer Credit (Briefing.com consensus $9.8 bln; prior $13.1 bln) at 15:00 ET

Drifting to the Close

• U.S. Treasuries hover just above lows that were reached about an hour ago. The selling has lifted the 30-yr yield back to its 50-day moving average (4.679%) while yields on shorter tenors hover near their highs from Wednesday. The stock market will close atop the hour while the Treasury market will close at 14:00 ET, so trading volume is expected to drift lower heading into the early close. Given the current standing, the 10-yr yield is on track to decrease by four basis points for the week while the 2-yr yield is down two basis points from last Friday's settlement.
• Yield Check:
  • 2-yr: +1 bp to 3.49%
  • 3-yr: +2 bps to 3.49%
  • 5-yr: +2 bps to 3.60%
  • 10-yr: +2 bps to 4.02%
  • 30-yr: +3 bps to 4.67%

Sitting on Lows

• U.S. Treasuries trade on their lows after a steady slide from their starting levels. Treasuries marked their best levels immediately at the start, followed by a retreat that has seen some leadership from the belly. The early selling has lifted yields to levels that were seen around this time on Wednesday. Equities are off to a modestly higher start with the S&P 500 (+0.3%) extending this week's gain to 3.4%.
• Yield Check:
  • 2-yr: +1 bp to 3.49%
  • 3-yr: +2 bps to 3.49%
  • 5-yr: +2 bps to 3.60%
  • 10-yr: +2 bps to 4.02%
  • 30-yr: +2 bps to 4.66%

Quiet Start Ahead

• U.S. Treasuries are on track for a generally flat start after yesterday's Thanksgiving closure. Treasury futures faced some light pressure in early evening trade, but activity eventually ground to a halt due to a cooling issue at a CME data center. The overnight session was jam-packed with economic data, including an elevated reading of Tokyo Core CPI for November (2.8% yr/yr) while the market expected a slight deceleration. Still, a Bank of Japan policymakers said that underlying inflation remains below the 2.0% target. South Korea's Industrial Production was down 4.0% in October against expectations for a much smaller decrease. In Europe, Germany's Retail Sales contracted in October (-0.3%) against expectations for slight growth (0.1%). The U.S. session will not feature any data and NYSE will close at 13:00 ET, followed by the Treasury market's closure at 14:00 ET. Crude oil is rising back above $59/bbl while the U.S. Dollar Index is up 0.1% at 99.69.
• Yield Check:
  • 2-yr: UNCH at 3.48%
  • 3-yr: +1 bp to 3.48%
  • 5-yr: -1 bp to 3.56%
  • 10-yr: -1 bp to 3.99%
  • 30-yr: UNCH at 4.64%

• News:
  • Japan's Ministry of Finance said that primary dealers want to see more issuance of 2-, 5-, and 10-yr JGBs and a reduced supply of ultra long JGBs.
  • A Bank of Japan policymakers said that underlying inflation remains below the 2.0% target even after years of above-target CPI readings.
  • Japan's November Tokyo CPI was up 2.7% yr/yr, as expected (last 2.8%) and Tokyo Core CPI was up 2.8% yr/yr (expected 2.7%; last 2.8%). October Retail Sales rose 1.7% yr/yr (expected 0.8%; last 0.2%), October Industrial Production rose 1.4% m/m (expected -0.5%; last 2.6%), and October Unemployment Rate remained at 2.6% (expected 2.5%). October jobs/applications ratio fell to 1.18 from 1.20 (expected 1.20). October Housing Starts were up 3.2% yr/yr (expected -5.0%; last -7.3%) and Construction Orders were down 10.1% yr/yr (last 34.7%).
  • South Korea's October Industrial Production fell 4.0% m/m (expected -0.2%; last -1.1%), dropping 8.1% yr/yr (last 11.9%). October Retail Sales rose 3.5% m/m (last -0.1%) and October Service Sector Output was down 0.6% m/m (last 2.0%).
  • India's Q2 GDP expanded 8.2% yr/yr (expected 7.3%; last 7.8%).
  • Australia's October Private Sector Credit was up 0.7% m/m (expected 0.6%; last 0.6%) and Housing Credit was up 0.6% m/m (last 0.6%).
  • Germany's October Import Price Index was up 0.2% m/m (expected 0.0%; last 0.2%), but down 1.4% yr/yr (expected -1.6%; last -1.0%). October Retail Sales fell 0.3% m/m (expected 0.1%; last 0.3%) but were up 0.9% yr/yr (last 3.4%). November unemployment increased by 1,000 (expected 4,000; last -2,000) and Unemployment Rate remained at 6.3%, as expected.
  • France's flash November CPI was down 0.1% m/m (expected 0.0%; last 0.1%) and up 0.9% yr/yr (expected 1.0%; last 0.9%). October PPI was unchanged m/m (last -0.1%), falling 0.8% yr/yr (last 0.1%). Q3 GDP expanded 0.5% qtr/qtr, as expected (last 0.3%), growing 0.9% yr/yr, as expected (last 0.7%). October Consumer Spending was up 0.4% m/m (expected 0.3%; last 0.3%). Q3 Nonfarm Payrolls were unchanged qtr/qtr (expected -0.3%; last 0.2%). October jobseeker total rose to 3.151 mln from 3.082 mln.
  • Italy's Q3 GDP expanded 0.1% qtr/qtr (expected 0.0%; last -0.1%), growing 0.6% yr/yr (expected 0.4%; last 0.4%). November CPI was down 0.2% m/m (expected -0.1%; last -0.3%) but up 1.2% yr/yr (last 1.2%).
  • Spain's flash November CPI was up 0.2% m/m (last 0.7%), rising 3.0% yr/yr, as expected (last 3.1%). November Core CPI was up 2.6% yr/yr (last 2.5%). October Retail Sales rose 3.8% yr/yr (last 4.1%). September Current Account surplus reached EUR1.87 bln (last surplus of EUR5.08 bln).
  • Swiss Q3 GDP decreased 0.5% qtr/qtr (expected -0.4%; last 0.2%) but was up 0.5% yr/yr (last 1.3%). November KOF Leading Indicators rose to 101.7 from 101.5 (expected 100.9).
• Commodities:
  • WTI Crude: +0.7% to $59.08/bbl
  • Gold: +0.5% to $4221.30/ozt
  • Copper: -0.2% to $5.184/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1570
  • GBP/USD: -0.1% to 1.3220
  • USD/CNH: UNCH at 7.0711
  • USD/JPY: -0.1% to 156.11

Intraday Bounce Helps Longer Tenors Climb Again

• U.S. Treasuries had a mixed showing ahead of tomorrow's Thanksgiving closure with 5s and shorter tenors recording their first set of losses in five days while 10s and 30s climbed for the fifth day in a row. The trading day started in quiet fashion even though the night featured some focus on diverging paths of central banks in the Asia-Pacific region. The Reserve Bank of New Zealand announced an expected rate cut and hinted at a looming end to its easing cycle and there was also growing speculation that Australia's easing cycle has concluded. Treasuries retreated from their starting levels during the first couple hours of action, but 5s and longer tenors staged a solid bounce after approaching their closing levels from Monday while shorter tenors were more reluctant in their rise off lows. Economic data that was released during the morning retreat showed a welcome drop in weekly jobless claims that produced the lowest level of Initial Claims (216,000; Briefing.com consensus 225,000) since April and a stronger-than-expected growth in Durable Orders for September (0.5%; Briefing.com consensus 0.3%). However, the Chicago PMI (36.3; Briefing.com consensus 44.5) showed a marked deceleration in manufacturing activity in the Chicago Fed region. The intraday bounce off lows eventually returned the 10-yr note to its opening level while the long bond settled at a fresh high. The market sustained its bounce through today's $44 bln 7-yr note auction, even though it was the second underwhelming note auction in a row. Crude oil climbed above $58.50/bbl while strength in precious metals lifted silver toward $53/ozt with its record high from mid-November (54.42) looming just above. The U.S. Dollar Index slipped 0.1% to 99.60, finding some resistance near its 200-day moving average (99.74). Happy Thanksgiving!
• Yield Check:
  • 2-yr: +2 bps to 3.48%
  • 3-yr: +2 bps to 3.47%
  • 5-yr: +1 bp to 3.57%
  • 10-yr: UNCH at 4.00%
  • 30-yr: -1 bp to 4.64%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was reduced to 3.9% from 4.0% in the latest estimate.
  • The Bank of Korea will release its latest statement overnight, but the policy rate is expected to remain at 2.50%.
  • European Central Bank policymaker Vucic said that risks to growth and inflation are balanced at this time while policymaker De Guindos said that trade uncertainty has receded.
  • British Chancellor Reeves announced that taxes will increase by GBP26 bln by 2030, in line with recent speculation.
  • The International Monetary Fund voiced concern that the German economy is at risk of undershooting growth expectations without reforms.
  • The Reserve Bank of New Zealand lowered its cash rate by 25 basis points to 2.25%, as expected, noting that it sees risks as balanced at this time. The central bank left the option of another rate cut on the table for 2026.
  • Press reports from Japan suggested that the Bank of Japan could announce its next rate hike at the December meeting with the market almost certain that the hike will be announced no later than the end of January.
  • Japan's October Corporate Services Price Index was up 2.7% yr/yr, as expected (last 3.1%) and September BoJ Core CPI was up 2.2% yr/yr, as expected (last 2.1%). September Leading Index rose to 108.6 from 107.0 (expected 108.0).
  • South Korea's November Business Confidence rose to 70 from 68.
  • Singapore's October Industrial Production was up 11.5% m/m (expected -3.5%; last 26.4%), jumping 29.1% yr/yr (expected 9.5%; last 16.2%).
  • Australia's Q3 Construction Work Done was down 0.7% qtr/qtr (expected 0.2%; last 2.9%). October CPI was unchanged 0.0% m/m (last 0.5%), rising 3.8% yr/yr (last 3.6%).
  • Swiss November ZEW Expectations rose to 12.2 from -7.7.
• Today's Data:
  • Initial jobless claims for the week ending November 22 decreased by 6,000 to 216,000 (Briefing.com consensus: 225,000). That is the lowest level of initial claims since April. Continuing jobless claims for the week ending November 15 increased by 7,000 to 1.960 million.
    • The key takeaway from the report is that initial claims filings are nowhere close to a recession-type level and continue to reflect a generally low-firing environment.
  • Durable goods orders increased 0.5% month-over-month in September (Briefing.com consensus: 0.3%) following an upwardly revised 3.0% increase (from 2.9%) in August. Excluding transportation, durable goods orders rose 0.6% (Briefing.com consensus: 0.2%) following an upwardly revised 0.5% increase (from 0.4%) in August.
    • The key takeaway from the report is that business spending, viewed through the lens of nondefense capital goods orders excluding aircraft (+0.9%), showed no signs of slowing, keeping pace with the 0.9% increase seen in August and exceeding the 0.7% growth rate in July.
  • The Chicago PMI hit 36.3 in November (Briefing.com consensus 44.5), down from 43.8 in October.
  • The weekly MBA Mortgage Index was up 0.2% to follow last week's 5.2% decrease. The Purchas Index rose 7.7% while the Refinance Index was down 5.7%.
  • The Fed's November Beige Book reported little overall change in activity since October. Two Districts saw modest softness while one saw modest growth. Consumer spending weakened but spending on higher-end items remained strong. There was no significant change in travel trends while Manufacturing increased slightly. There was some pressure on overall employment while prices rose moderately.
  • Weekly crude oil inventories increased by 2.77 mln barrels after decreasing by 3.43 mln barrels a week ago.
  • Weekly natural gas inventories decreased by 11 bcf after decreasing by 14 bcf a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.781% (4.142%).
    • Bid-to-cover: 2.46 (2.60).
    • Indirect bid: 56.7% (67.4%).
    • Direct bid: 30.3% (22.5%).
• Commodities:
  • WTI crude: +1.2% to $58.67/bbl
  • Gold: +1.5% to $4202.40/ozt
  • Copper: +2.0% to $5.19/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1593
  • GBP/USD: +0.5% to 1.3234
  • USD/CNH: -0.2% to 7.0685
  • USD/JPY: +0.3% to 156.46
• The Day Ahead:
  • Bond and equity markets closed for Thanksgiving
• Friday:
  • NYSE to close at 13:00 ET and Treasury market to close at 14:00 ET