Bond Market Update

Data Recon

• U.S. Treasuries have slid to lows in immediate reaction to the September CPI report, which showed an acceleration in year-over-year rates for CPI (to 3.7% from 3.4%) and Core CPI (to 2.6% from 2.4%). The front end has paced the post-CPI weakness while longer tenors outperform, but they have not been able to stay out of the red.
• Total CPI increased 0.6% month-over-month (Briefing.com consensus: 0.6%), led by a 5.2% jump in the energy index, following a 0.4% increase in August. The September increase left total CPI up 3.7% year-over-year versus 3.4% in August. Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.2%), pushed by a 0.4% increase in the shelter index, following a 0.3% increase in August. That left core CPI up 2.6% year-over-year versus 2.4% in August.
  • The key takeaway from the report is the acceleration in inflation away from the Fed's 2.0% inflation target. That is going to accelerate concerns about a possible tightening of Fed policy at the October FOMC meeting, not to mention deficit worries as cost-of-living adjustments for 2027 for SSI recipients are on track to see their largest increase in three years.
• Yield Check:
  • 2-yr: +12 bps to 4.91%
  • 3-yr: +11 bps to 5.03%
  • 5-yr: +10 bps to 5.11%
  • 10-yr: +8 bps to 5.30%
  • 30-yr: +5 bps to 5.61%

Inching Higher Ahead of CPI

• U.S. Treasuries are on track for a modestly higher start ahead of the 8:30 ET release of September CPI (Briefing.com consensus 0.6%; prior 0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%), a report that will quickly be dissected for its potential rate-hike implications. The modestly higher start will follow a night that saw a steady rise in Treasury prices through the Asian session, with the market holding near highs during European trade. Economic data released overnight showed a larger-than-expected September trade surplus from China while CPI growth remained mild, leaving the year-over-year CPI rate at 0.9%. Crude oil climbed past $95/bbl overnight, reaching levels last seen about three weeks ago. The U.S. Dollar Index is up 0.1% at 102.24.
• Yield Check:
  • 2-yr: -1 bp to 4.78%
  • 3-yr: -2 bps to 4.90%
  • 5-yr: -2 bps to 4.99%
  • 10-yr: -2 bps to 5.20%
  • 30-yr: -1 bp to 5.55%

• News:
  • The Monetary Authority of Singapore made no changes to its policy stance against expectations for tightening.
  • South Korea may reduce its debt issuance by up to KRW10 trln.
  • European Central Bank President Lagarde repeated that second-round effects of inflation are not being seen.
  • European Central Bank policymaker Wunsch said that the ECB will probably have to implement another rate hike.
  • Germany's Economic Ministry noted that the momentum in the German economy likely slowed in Q3.
  • China's September CPI 0.2% m/m (expected 0.3%; prior 0.4%) and 0.9% yr/yr (expected 1.0%; prior 0.8%); PPI 5.0% yr/yr (expected 4.4%; prior 3.8%). September Trade Balance $133.53 bln (expected $116.80 bln; prior $119.09 bln); Exports 36.3% yr/yr (expected 25.5%; prior 25.0%) and Imports 31.0% yr/yr (expected 24.5%; prior 28.2%). September New Loans CNY1.080 trln (expected CNY1.025 trln; prior CNY60.0 bln); Total Social Financing CNY3.550 trln (expected CNY3.270 trln; prior CNY1.660 trln); M2 Money Supply 7.2% yr/yr (expected 7.4%; prior 7.5%) and Outstanding Loan Growth 4.8% yr/yr (expected 4.8%; prior 4.9%).
  • India's September WPI Inflation 11.39% yr/yr (expected 10.18%; prior 9.92%); Manufacturing Inflation 9.76% (prior 8.37%), Food Inflation 8.14% (prior 5.67%), and Fuel Inflation 25.85% (prior 22.93%).
  • Germany's September WPI 1.9% m/m (expected 0.6%; prior 0.9%) and 8.7% yr/yr (prior 6.8%).
  • Spain's September CPI 0.3% m/m (expected 0.3%; prior 0.7%) and 4.9% yr/yr (expected 4.9%; prior 4.3%); Core CPI 3.1% yr/yr (expected 3.1%; prior 2.9%); HICP 0.6% m/m (expected 0.6%; prior 0.7%) and 5.0% yr/yr (expected 5.0%; prior 4.6%).
• Commodities:
  • WTI Crude: +1.9% to $95.93/bbl
  • Gold: -0.4% to $4160.90/ozt
  • Copper: +0.2% to $6.742/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1193
  • GBP/USD: +0.1% to 1.3265
  • USD/CNH: UNCH at 6.6940
  • USD/JPY: +0.1% to 158.44
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -2.7%; prior -4.2%)
  • 8:30 ET: September CPI (Briefing.com consensus 0.6%; prior 0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%)
  • 14:00 ET: October Beige Book

Longer Tenors Resist Intraday Pressure

• U.S. Treasuries had a mostly higher start to the holiday-shortened week, but the front end finished flat after reversing from a higher start while longer tenors held onto a portion of their starting gains. The trading day started with gains across the curve that had the 30-yr yield starting the session at its lowest level in two weeks, but the market could not sustain its strong start. Instead, Treasuries backtracked about 30 minutes after the open, continuing their retreat until the short end turned negative in mid-morning trade with some help from an upward push in the price of oil. Afternoon action saw some late buying, which returned the 2-yr note to little changed while longer tenors kept a portion of their gains. Today's economic data was limited to the Existing Home Sales report for September (3.99 mln; Briefing.com consensus 3.96 mln), which beat expectations, but still showed lower year-over-year sales in all four geographical regions. The report had little impact on the market, but tomorrow morning will bring the release of September CPI (Briefing.com consensus 0.6%; prior 0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%), which will surely garner attention. Crude oil finished the day just above $94/bbl while the U.S. Dollar Index fell 0.4% to 102.19, reversing from its highest level since April 2025.
• Yield Check:
  • 2-yr: UNCH at 4.79%
  • 3-yr: -1 bp to 4.92%
  • 5-yr: -1 bp to 5.01%
  • 10-yr: -2 bps to 5.22%
  • 30-yr: -4 bps to 5.56%

• News:
  • New York Fed President (permanent FOMC voter) Williams said that he expects that one more rate hike will be needed this year, but he does not see the need for more hikes in 2027.
  • Visa (V) received approval to set the groundwork for a bank card clearing facility in China.
  • A Bank of Japan survey showed that Japanese households expect prices to rise by an average of 11.8% a year from now.
  • The IMF began its semi-annual meetings yesterday, which will continue through Sunday. The Fund raised its 2026 global growth target to 3.1% from 3.0% and kept the forecast for 2027 at 3.4%.
  • The Reserve Bank of Australia expressed concern in its minutes that pausing hikes while global rates are on the rise would exert downward pressure on the Australian dollar.
  • Japan's September PPI -0.3% m/m (expected 0.5%; prior -0.3%) and 6.8% yr/yr (expected 7.6%; prior 7.6%); Bank Lending 5.3% yr/yr (expected 5.5%; prior 5.3%).
  • Australia's September NAB Business Confidence -13 (prior -9) and NAB Business Survey -1 (prior -1).
  • Germany's September CPI 0.6% m/m (expected 0.6%; prior 0.2%) and 3.3% yr/yr (expected 3.3%; prior 2.9%); HICP 0.6% m/m (expected 0.6%; prior 0.2%) and 3.3% yr/yr (expected 3.3%; prior 2.9%).
  • U.K.'s September BRC Retail Sales Monitor 1.0% yr/yr (expected 0.8%; prior 0.5%).
• Today's Data:
  • Existing home sales increased 1.5% month-over-month in September to a seasonally adjusted annual rate of 3.99 million (Briefing.com consensus 3.96 million) from a downwardly revised 3.93 million (from 3.98 million) in August. Sales were down 2.2% on a year-over-year basis.
    • The key takeaway from the report is that year-over-year sales were down in all four regions, reflecting persistent headwinds from high mortgage rates. As a result, August and September have been the slowest two months for home sales so far in 2026.
  • The NFIB Small Business Optimism Index fell to 97.9 in September (Briefing.com consensus 98.0) from 98.7 in August.
• Commodities:
  • WTI crude: +0.3% to $94.06/bbl
  • Gold: -0.3% to $4176.60/ozt
  • Copper: -0.3% to $6.73/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1201
  • GBP/USD: +0.4% to 1.3255
  • USD/CNH: UNCH at 6.6929
  • USD/JPY: -0.2% to 158.31
• The Day Ahead:
  • 7:00 ET: Wednesday: Weekly MBA Mortgage Index (prior -4.2%)
  • 8:30 ET: September CPI (Briefing.com consensus 0.6%; prior 0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%)
  • 14:00 ET: October Beige Book

Early Gains Moderated

• U.S. Treasuries trade on their lows after a morning pullback from their starting levels. The trading day started with relative strength in longer tenors, which briefly pressured the 30-yr yield to its lowest level in two weeks. However, the higher start was followed by an immediate pullback that eventually pressured 5s and shorter tenors into the red while longer tenors gave back a good chunk of their initial gains. True to recent form, the intraday pressure coincided with a rebound in the price of oil, which is now up $0.67, or 0.7%, for the day, trading at $94.41/bbl. Elsewhere, equities trade modestly lower after trimming their starting losses with the S&P 500 down just 0.1% while the Dow (-0.3%) underperforms after starting the day ahead of the S&P 500.
• Yield Check:
  • 2-yr: +2 bps to 4.81%
  • 3-yr: +1 bp to 4.94%
  • 5-yr: UNCH at 5.02%
  • 10-yr: -1 bp to 5.23%
  • 30-yr: -2 bps to 5.58%

Data Recon

• U.S. Treasuries have spent the first couple hours of the session in a retreat from their starting levels. The pullback from early highs has sent the front end into negative territory while longer tenors continue hanging onto modest gains, though they too have faced some early pressure.
• Existing home sales increased 1.5% month-over-month in September to a seasonally adjusted annual rate of 3.99 million (Briefing.com consensus 3.96 million) from a downwardly revised 3.93 million (from 3.98 million) in August. Sales were down 2.2% on a year-over-year basis.
  • The key takeaway from the report is that year-over-year sales were down in all four regions, reflecting persistent headwinds from high mortgage rates. As a result, August and September have been the slowest two months for home sales so far in 2026.
• Yield Check:
  • 2-yr: +2 bps to 4.81%
  • 3-yr: UNCH at 4.93%
  • 5-yr: UNCH at 5.02%
  • 10-yr: -2 bps to 5.22%
  • 30-yr: -3 bps to 5.57%