Bond Market Update

Yields Revisit Monday Lows

• U.S. Treasuries finished Thursday with solid gains across the curve after a steady march off their opening lows. Treasuries slipped out of the gate after a night that featured better than expected Q3 growth from South Korea and continued speculation about another rate hike from the Reserve Bank of Australia. In other central bank news, the European Central Bank refrained from raising rates for the first time in ten meetings, noting that underlying inflation has eased and is expected to continue decelerating. However, ECB President Lagarde refused to say that the peak rate has been reached, adding that it would be premature to discuss rate cuts. Treasuries widened their opening losses in immediate reaction to the release of a much stronger than expected advance GDP report for Q3 (actual 4.9%; Briefing.com consensus 4.0%), but then reversed quickly, and continued rising as the day went on. The turn was likely owed to a belief that the Q3 report marks a peak in growth, but it also should be acknowledged that the core PCE Price Index was up 2.4% in Q3, slowing significantly from 3.7% in Q2 and 4.9% in Q1. The Treasury complex continued rising as the day went on, receiving early-afternoon assistance from a strong $38 bln 7-yr note auction, which followed yesterday's weak 5-yr note sale. Today's rally returned yields on 10s and 30s to this week's lows while yields on shorter tenors set fresh lows for the week by a slim margin. Crude oil gave back yesterday's gain while the U.S. Dollar Index inched up 0.1% to 106.61, pausing within a point of its October high (107.35).
• Yield Check:
  • 2-yr: -7 bps to 5.05%
  • 3-yr: -8 bps to 4.89%
  • 5-yr: -12 bps to 4.80%
  • 10-yr: -11 bps to 4.85%
  • 30-yr: -10 bps to 4.99%

• News:
  • The Central Bank of Turkiye raised its policy rate by 500 bps to 35.00%, as expected.
  • A YouGov poll in the U.K. showed that one-year inflation expectations slowed to 4.2% from 4.4% in September while the 5-10 year outlook remained at 3.3%.
  • German Chipmaker STMicroelectronics issued below-consensus guidance for Q4 while Mercedes reported weak profit margins due to price pressures in the EV segment. 
  • French food company Danone raised its revenue guidance for the year.
  • China's smartphone shipments were down 5% yr/yr in Q3.
  • Reserve Bank of Australia Governor Bullock said that he has yet to decide if another rate hike is needed after yesterday's release of hotter than expected CPI for Q3.
  • Toyota lowered its production targets for November and December and set a January domestic production target of 13,800 units per day.
  • China reportedly restricted highly indebted local governments from taking on new debt in late September.
  • Japan's August Corporate Services Price Index was up 2.1% yr/yr (expected 2.0%; last 2.1%).
  • South Korea's Q3 GDP expanded 0.6% qtr/qtr (expected 0.5%; last 0.6%), growing 1.4% yr/yr (expected 1.1%; last 0.9%). November Manufacturing BSI Index rose to 71 from 68.
  • Hong Kong's September trade deficit reached $64.6 bln (last deficit of $25.6 bln) as imports fell 0.4% m/m (last -0.3%) and exports decreased 5.3% m/m (last -3.7%).
  • Australia's Q3 Import Price Index was up 0.8% qtr/qtr (expected 0.2%; last -0.8%) and Export Price Index was down 3.1% qtr/qtr (last -8.5%).
  • Singapore's Q3 Unemployment Rate rose to 2.0% from 1.9%. September Industrial Production was up 10.7% m/m (expected 7.5%; last -10.8%) but down 2.1% yr/yr (expected -4.8%; last -11.6%).
  • U.K.'s October CBI Distributive Trades Survey fell to -36 from -14 (expected -16).
  • Spain's Q3 Unemployment Rate rose to 11.84% from 11.60% (expected 11.50%).
• Today's Data:
  • Real GDP increased at an annual rate of 4.9% (Briefing.com consensus 4.0%) following a 2.1% increase in the second quarter. Personal spending jumped 4.0% and accounted for 2.69 percentage points of growth. The GDP Chain Deflator was up 3.5% (Briefing.com consensus 2.7%) following a 1.7% increase in the second quarter.
    • The key takeaway from the report is that the Q3 GDP report was nearly every bit as much as what the Atlanta Fed GDPNow model estimated it would be, which is to say economic activity surged in the third quarter on the back of the consumer, shedding some objective light on why the Fed remains inclined to keep rates high for longer.
  • Initial jobless claims for the week ending October 21 increased by 10,000 to 210,000 (Briefing.com consensus 210,000). Continuing jobless claims for the week ending October 14 increased by 63,000 to 1.790 million.
    • The key takeaway from the report is that the level of initial jobless claims does not suggest the labor market is weakening in a material way at this juncture.
  • Durable goods orders jumped 4.7% month-over-month in September (Briefing.com consensus 1.5%) following a downwardly revised 0.1% decline (from 0.2%) in August. Excluding transportation, durable goods orders rose 0.5% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.5% increase (from 0.4%) in August.
    • The key takeaway from the report is that business spending continued to increase, evidenced by the 0.6% increase in nondefense capital goods orders excluding aircraft.
  • The Advance Intl. Trade in Goods deficit widened to $85.8 billion in September from $84.6 billion in August.
  • Advance Retail Inventories increased 0.9% on the heels of a 1.1% increase in August.
  • Advance Wholesale Inventories were flat after declining 0.1% in August.
  • Pending Home Sales were up 1.1% in September (Briefing.com consensus 0.5%) after decreasing 7.1% in August.
  • $38 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.908% (3.937%).
    • Bid-to-cover: 2.70 (2.51).
    • Indirect bid: 70.6% (68.4%).
    • Direct bid: 18.4% (18.4%).
• Commodities:
  • WTI crude: -2.7% to $83.06/bbl
  • Gold: +0.1% to $1997.20/ozt
  • Copper: UNCH at $3.59/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0558
  • GBP/USD: +0.2% to 1.2132
  • USD/CNH: -0.1% to 7.3244
  • USD/JPY: +0.1% to 150.35
• The Day Ahead:
  • 8:30 ET: September Personal Income (Briefing.com consensus 0.4%; prior 0.4%), Personal Spending (Briefing.com consensus 0.5%; prior 0.4%), PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), and Core PCE Prices (Briefing.com consensus 0.3%; prior 0.1%)
  • 10:00 ET: Final October University of Michigan Consumer Sentiment (Briefing.com consensus 63.1; prior 63.0)