Bond Market Update

Short End Lags as FOMC Nears

• U.S. Treasuries began the week on a mixed note, though intraday action was confined to a narrow range with longer tenors showing some relative strength. The trading day started with modest losses after a night that saw reduced volume due to a holiday in Japan. The lower start followed a quiet night on the data front, and it lifted yields toward their highs from last week. However, the market bounced off lows before the end of the opening hour, continuing the recovery as the day went on. The rebound lifted 10s and 30s into positive territory in the afternoon while shorter tenors lagged. The market received a weaker than expected NAHB Housing Market Index for September (actual 45; Briefing.com consensus 50) ahead of tomorrow's release of August Housing Starts (Briefing.com consensus 1.435 mln; prior 1.452 mln) and Building Permits (Briefing.com consensus 1.442 mln; prior 1.442 mln). However, Wednesday's FOMC decision is setting up to be the headline event of the week, even though the FOMC is not expected to announce another rate hike. Still, the Committee will release its updated economic projections, which could reinforce the thinking that the fed funds rate range will remain at a higher level for longer. Crude oil ended the pit session with a modest loss but bounced in electronic trading. The U.S. Dollar Index slipped 0.1% to 105.17.
• Yield Check:
  • 2-yr: UNCH at 5.04%
  • 3-yr: +4 bps to 4.74%
  • 5-yr: +1 bp to 4.46%
  • 10-yr: UNCH at 4.32%
  • 30-yr: -2 bps to 4.40%

• News:
  • Moody's raised Greece's sovereign rating to Ba1 from Ba3 and revised the outlook to Stable from Positive.
  • Fitch affirmed Germany's AAA rating with a Stable Outlook.
  • Standard & Poor's affirmed Spain's A rating with a Stable outlook.
  • European Central Bank policymaker Holzmann said that there is a risk that more tightening will be needed, though he described the likelihood another hike as not big, while policymaker Kazimir said that he hopes that the September hike was the final one.
  • NZIER lowered New Zealand's 2023/24 growth forecast to 0.4% from 0.6% while inflation in Q1 is expected to reach 4.3%.
  • Singapore's August trade surplus reached SGD3.584 bln (expected surplus of SGD5.787 bln; last surplus of SGD6.509 bln) as non-oil exports fell 3.8% m/m (expected 5.5%; last -3.5%), decreasing 20.1% yr/yr (expected -15.8%; last -20.3%).
  • U.K.'s September Rightmove House Prices were up 0.4% m/m (last -1.9%) but down 0.4% yr/yr (last -0.1%).
• Today's Data:
  • The NAHB Housing Market Index fell to 45 in September (Briefing.com consensus 50) from 50 in August.
• Commodities:
  • WTI crude: -0.5% to $90.53/bbl
  • Gold: +0.4% to $1953.80/ozt
  • Copper: -0.6% to $3.78/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0684
  • GBP/USD: UNCH at 1.2378
  • USD/CNH: +0.2% to 7.2914
  • USD/JPY: -0.1% to 147.65
• The Day Ahead:
  • 8:30 ET: August Housing Starts (Briefing.com consensus 1.435 mln; prior 1.452 mln) and Building Permits (Briefing.com consensus 1.442 mln; prior 1.442 mln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results