Bond Market Update

Sliding Out of the Gate

• U.S. Treasuries trade on their lows after a slow retreat from their starting levels. The market started the day little changed, but some pressure began showing up immediately after the start, keeping the market on the defensive during the past couple hours as crude oil climbs past $104/bbl. The early losses have been slim, though they have been enough to drive the 10-yr yield to a fresh 2026 high at 5.000%. The belly underperforms at this juncture while the long bond outperforms slightly. Equities are off to a weak start with the S&P 500 (-0.6%) pressured mostly by tech stocks.
• Yield Check:
  • 2-yr: +3 bps to 4.67%
  • 3-yr: +3 bps to 4.76%
  • 5-yr: +4 bps to 4.83%
  • 10-yr: +3 bps to 5.00%
  • 30-yr: +2 bps to 5.37%

Steady Start Ahead

• U.S. Treasuries are on track for a slightly higher start in longer tenors after a subdued start to the week in the futures market. Treasury futures inched higher in early evening action, but the gains faded during the Asian session, leaving the market in a narrow sideways range that has held into early morning trade while other sovereign debt has faced some pressure. Crude oil has maintained an upward path, rising back toward last week's high amid no meaningful improvement in the conflict with Iran. Overnight action featured some weakness in global chip and tech stocks amid signs that large U.S. tech companies may slow their development of AI models. Today's U.S. session will not include any data. The U.S. Dollar Index is up 0.4% at 99.53 with the greenback reaching a one-month high against the euro.
• Yield Check:
  • 2-yr: UNCH at 4.64%
  • 3-yr: UNCH at 4.73%
  • 5-yr: +1 bp to 4.80%
  • 10-yr: -1 bp to 4.97%
  • 30-yr: UNCH at 5.35%

• News:
  • Japan's chief cabinet secretary said that JGB issuance will be controlled through the initial and extra budgets.
  • European Central Bank policymakers Kazaks, Kazimir, and Simkus are leaving the door open to additional rate hikes.
  • China's August New Loans reached CNY60.0 bln (expected CNY480.0 bln; last -CNY340.0 bln), August Outstanding Loans grew 5.0% yr/yr (expected 5.1%; last 5.1%), and August total social financing CNY1.660 trln (expected CNY2.04 trln; last CNY660.0 bln).
  • Japan's July Industrial Production -0.2% m/m (expected 0.1%; last 1.9%) and Capacity Utilization 0.5% m/m (last 4.1%).
  • Hong Kong's Q2 PPI 13.1% yr/yr (last 17.7%). Q2 Industrial Production 2.3% yr/yr (last 3.2%).
  • New Zealand's August Performance of Services Index 51.2 (last 50.6). July Visitor Arrivals 0.5% m/m.
  • India's August WPI Inflation 9.92% yr/yr (expected 9.89%; last 9.78%) and August CPI 4.98% (expected 4.80%; last 4.44%)
  • Swiss August PPI was up 0.7% m/m (expected 0.1%; last -0.1%) but down 0.7% yr/yr (last -2.1%).
• Commodities:
  • WTI Crude: +3.1% to $103.13/bbl
  • Gold: -1.7% to $4334.00/ozt
  • Copper: -2.0% to $6.42/lb
• Currencies: 
  • EUR/USD: -0.4% to 1.1546
  • GBP/USD: -0.2% to 1.3486
  • USD/CNH: UNCH at 6.7096
  • USD/JPY: +0.7% to 154.60
• No Data on Today's Schedule

Firming Rate Hike Expectations Offer Continued Pressure

• U.S. Treasuries had a mostly lower finish to a rough week that saw yields on all notes and bonds hit fresh highs for the year amid firming expectations for a rate hike next week. The Friday session started with relative weakness up front, but the entire complex faced some impulse selling during the initial minutes after the CPI report for August matched headline expectations (0.4%), but also showed slightly hotter-than-expected Core CPI (0.3%; Briefing.com consensus 0.2%). The market rallied from lows to highs during the next 30 minutes, but the rest of the session saw steady pressure that returned 5s and shorter tenors back to their post-CPI lows while longer tenors put up more of a fight, but they also spent the day in a retreat from their morning highs. The market drew little respite from a pullback in the price of oil, which still increased by nearly $9/bbl, and market expectations for a rate hike on Wednesday approached 90%. This week's underperformance up front compressed the 2s10s spread by six basis points to 34 bps while the 2s30s spread tightened by 15 basis points to 72 bps. The U.S. Dollar Index rose 0.1% to 99.14, returning to its 200-day moving average (99.14) and to unchanged for the week.
• Yield Check:
  • 2-yr: +9 bps to 4.64% (+26 bps this week)
  • 3-yr: +8 bps to 4.73% (+28 bps this week)
  • 5-yr: +6 bps to 4.79% (+24 bps this week)
  • 10-yr: +3 bps to 4.98% (+20 bps this week)
  • 30-yr: -1 bp to 5.36% (+11 bps this week)

• News:
  • China released a five-year plan for developing intelligent connected new energy vehicles.
  • South China Morning Post reported that foreign automakers are slashing prices of gas-powered vehicles in China.
  • South Korea's exports for the first ten days of September were up 82.6% with chip exports soaring 270.1%.
  • Several European Central Bank policymakers commented about inflation remaining too high, prompting speculation about another rate hike in October. 
  • France's finance ministry lowered its domestic growth forecast for the year to 0.5% from 0.7%.
  • Towns in England led by mayors from the Labour party are reportedly planning a 5% tourist tax.
  • Japan's August PPI was down 0.2% m/m (expected 0.0%; last 0.4%) but up 7.6% yr/yr (expected 7.4%; last 7.7%). Q3 BSI Large Manufacturing Conditions rose to 7.6 from -1.8 (expected 2.5).
  • New Zealand's August Business PMI hit 53.1 (last 54.3).
  • U.K.'s July GDP expanded 0.4% m/m (expected 0.0%: last 0.3%), growing 1.6% yr/yr (expected 1.2%; last 1.1%). July trade deficit reached GBP20.97 bln (expected deficit of GBP22.60 bln; last deficit of GBP23.01 bln). July Industrial Production was up 0.2% m/m (expected -0.2%; last -0.2%), rising 0.6% yr/yr (expected 0.2%; last -0.2%). July Manufacturing Production was up 0.9% m/m (expected 0.2%; last -0.5%), rising 2.6% yr/yr (expected 2.0%; last 0.5%). July Construction Output was up 0.1% m/m, as expected (last 0.1%) but down 2.5% yr/yr (expected -2.3%; last -2.3%).
  • Italy's Q2 Unemployment Rate rose to 5.6% from 5.3% (expected 5.4%).
  • Swiss August SECO Consumer Climate remained at -33, as expected.
• Today's Data:
  • Total CPI was up 0.4% month-over-month in August, as expected, while core CPI, which excludes food and energy, was up 0.3% (Briefing.com consensus: 0.2%). With these changes, the year-over-year increase in total CPI was 3.4%, as expected, unchanged from July, and core CPI was up 2.4%, down from 2.5% in July.
    • The key takeaway from the report is that it wasn't good enough to put September rate-hike fears to rest.
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for September sunk to 47.8 (Briefing.com consensus: 51.5) from 51.7 in August. In the same period a year ago, the index stood at 55.1.
    • The key takeaway from the report is the dour outlook embedded in the index of consumer expectations, which was plagued by a worsening outlook for personal finances and business conditions.
  • The U.S. Treasury reported a $166.8 bln deficit for August (Briefing.com consensus -$485.0 bln). The Treasury Budget data is not seasonally adjusted so the August deficit cannot be compared to the July deficit of $432.3 bln. The deficit a year ago was $344.8 bln.
• Commodities:
  • WTI crude: -2.3% to $100.08/bbl
  • Gold: UNCH at $4409.10/ozt
  • Copper: UNCH at $6.55/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1594
  • GBP/USD: +0.1% to 1.3525
  • USD/CNH: -0.1% to 6.7085
  • USD/JPY: -0.4% to 153.75
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: September Empire State Manufacturing (Briefing.com consensus 14.1; prior 20.6) at 8:30 ET and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.7%) at 7:00 ET; August Retail Sales (Briefing.com consensus 0.9%; prior -0.6%), Retail Sales ex-auto (Briefing.com consensus 0.5%; prior -0.3%), August Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -1.3%), and Export Prices ex-agriculture (prior -1.5%) at 8:30 ET; July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 34; prior 35) at 10:00 ET; weekly crude oil inventories (prior -390,000) at 10:30 ET; September FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 3.50-3.75%) at 14:00 ET; and July Net Long-Term TIC Flows (prior -$172.7 bln) at 16:00 ET
  • Thursday: August Housing Starts (Briefing.com consensus 1.325 mln; prior 1.239 mln), Building Permits (Briefing.com consensus 1.410 mln; prior 1.443 mln), weekly Initial Claims (Briefing.com consensus 209,000; prior 206,000), Continuing Claims (prior 1.774 mln), and September Philadelphia Fed survey (Briefing.com consensus 35.0; prior 47.4) at 8:30 ET; August Pending Home Sales (Briefing.com consensus 0.5%; prior -2.3%) at 10:00 ET; and weekly natural gas inventories (prior +40 bcf) at 10:30 ET
  • Friday: August Industrial Production (Briefing.com consensus 0.3%; prior 1.1%) and Capacity Utilization (Briefing.com consensus 76.4%; prior 76.3%) at 9:15 ET; and August Leading Index (Briefing.com consensus 0.2%; prior 0.2%) at 10:00 ET

Drifting Along

• U.S. Treasuries of most tenors hover near their starting levels after withstanding some early volatility, which briefly sent the 5-yr yield to its highest level since October 2023. Treasuries followed their post-CPI slide with a quick rally to highs while the past couple hours have seen a slow drip that has sent the 10-yr note back into the red while the long bond continues hanging onto a slim gain. Barring some late volatility, Treasuries remain on course for a sharply lower finish to the abbreviated week with the 2-yr yield up 24 basis points from last Friday's settlement while the 30-yr yield is up ten basis points for the week.
• Yield Check:
  • 2-yr: +7 bps to 4.62%
  • 3-yr: +5 bps to 4.70%
  • 5-yr: +3 bps to 4.77%
  • 10-yr: +1 bp to 4.95%
  • 30-yr: -2 bps to 5.35%

Data Recon

• The preliminary reading for the University of Michigan Consumer Sentiment Index for September sunk to 47.8 (Briefing.com consensus: 51.5) from 51.7 in August. In the same period a year ago, the index stood at 55.1.
  • The key takeaway from the report is the dour outlook embedded in the index of consumer expectations, which was plagued by a worsening outlook for personal finances and business conditions.
• Yield Check:
  • 2-yr: +3 bps to 4.58%
  • 3-yr: +2 bps to 4.67%
  • 5-yr: +1 bp to 4.74%
  • 10-yr: -1 bp to 4.93%
  • 30-yr: -3 bps to 5.33%