Bond Market Update

Recent Losses Narrowed

• U.S. Treasuries climbed on Friday, making for a rebound from their recent slide that lifted yields on longer tenors to levels not seen since the end of July as hopes for another 50-bps rate cut faded. The trading day started with a slim loss in the long bond while shorter tenors outperformed at the start after a quiet night in global markets that was underscored by anticipation ahead of tomorrow's press briefing organized by China's Ministry of Finance to comment on planned fiscal policy adjustments. Treasuries held their ground in morning trade after the PPI report for September showed a cooler-than-expected headline reading (0.0%; Briefing.com consensus 0.1%) and an in-line core reading (0.2%). The market inched higher in the late morning with shorter tenors pacing a rise to session highs in the early afternoon while longer tenors remained behind into the close, but still managed a higher finish. This week's underperformance in longer tenors expanded the 2s10s spread by eight basis points to 13 bps. Crude oil ended lower today, but still gained $1.06, or 1.4%, for the week, while the U.S. Dollar Index slipped 0.1% to 102.86, narrowing this week's gain to 0.4%.
• Yield Check:
  • 2-yr: -6 bps to 3.94% (+1 bp this week)
  • 3-yr: -5 bps to 3.86% (+2 bps this week)
  • 5-yr: -4 bps to 3.88% (+7 bps this week)
  • 10-yr: -2 bps to 4.07% (+9 bps this week)
  • 30-yr: UNCH at 4.38% (+11 bps this week)

• News:
  • The French government announced a draft budget for 2025, aiming for a 5% budget deficit, but the plan also calls for a six-month freeze on state pensions, which is being opposed by all legislative blocks.
  • Germany is reportedly planning a 10% increase to its debt issuance in 2025.
  • Japan's September M2 Money Stock was up 1.3% yr/yr (expected 1.5%; last 1.3%).
  • New Zealand's September Business PMI hit 46.9 (last 45.8). September Visitor Arrivals were down 4.3% m/m (last 2.2%), and September FPI was up 0.5% m/m (last 0.2%).
  • Germany's September CPI was unchanged m/m, as expected (last -0.1%), rising 1.6% yr/yr, as expected (last 1.9%).
  • U.K.'s August GDP expanded 0.2% m/m, as expected (last 0.0%), growing 1.0% yr/yr (expected 1.4%; last 0.9%). August Construction Output was up 0.4% m/m (expected 0.5%; last -0.4%), rising 0.3% yr/yr (expected -0.3%; last -1.4%). August Industrial Production was up 0.5% m/m (expected 0.2%; last -0.7%) but down 1.6% yr/yr (expected -0.5%; last -2.2%). August Manufacturing Production was up 1.1% m/m (expected 0.3%; last -1.2%) but down 0.3% yr/yr (expected -0.4%; last -2.0%). August trade deficit reached GBP15.06 bln (expected deficit of GBP18.80 bln; last deficit of GBP18.87 bln).
  • Swiss October SECO Consumer Climate improved to -34 from -35 (expected -33).
• Today's Data:
  • The Producer Price Index for final demand was unchanged month-over-month in September (Briefing.com consensus 0.1%). The Producer Price Index for final demand, excluding food and energy, was up 0.2% month-over-month (Briefing.com consensus 0.2%). The Producer Price Index for final demand rose 1.8% year-over-year, a smidgen below the upwardly revised 1.9% increase (from 1.7%) seen in August, but above the 1.6% increase expected for September. The Producer Price Index for final demand, excluding food and energy, increased 2.8% year-over-year. That was above the upwardly revised 2.6% (from 2.4%) for August and the 2.7% increase expected for September.
    • The key takeaway from the report is that producers are still tangling with elevated prices, excluding food and energy, which means the Fed is still going to have to tangle with inflation data that will make it harder at this stage to justify aggressive rate cuts.
  • The preliminary October University of Michigan index of Consumer Sentiment slipped to 68.9 (Briefing.com consensus 70.1) from the final reading of 70.1 for September. In the same period a year ago, the index stood at 63.8.
    • The key takeaway from the report is that consumers remain frustrated over high prices; nonetheless, sentiment is still higher than it was a year ago and is close to 40% above the trough seen in June 2022.
• Commodities:
  • WTI crude: -0.5% to $75.46/bbl
  • Gold: +1.4% to $2675.80/ozt
  • Copper: +0.9% to $4.49/lb
• Currencies:
  • EUR/USD: UNCH at 1.0939
  • GBP/USD: +0.1% to 1.3072
  • USD/CNH: -0.2% to 7.0683
  • USD/JPY: +0.4% to 149.09
• The Week Ahead:
  • Monday: Bond market closed for Columbus Day
  • Tuesday: October Empire State Manufacturing (prior 11.5) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -5.1%) at 7:00 ET; September Import Prices (prior 0.8%), Import Prices ex-oil (prior -0.1%), Export Prices (prior -0.7%), and Export Prices ex-agriculture (prior -0.6%) at 8:30 ET; and weekly crude oil inventories (prior +5.81 mln) at 10:30 ET
  • Thursday: September Retail Sales (prior 0.1%), Retail Sales ex-auto (prior 0.1%), October Philadelphia Fed Survey (prior 1.7), weekly Initial Claims (prior 258,000), and Continuing Claims (prior 1.861 mln) at 8:30 ET; September Industrial Production (prior 0.8%) and Capacity Utilization (prior 78.0%) at 9:15 ET; August Business Inventories (prior 0.4%) and October NAHB Housing Market Index (prior 41) at 10:00 ET; weekly natural gas inventories (prior +82 bcf) at 10:30 ET; and August Net Long-Term TIC Flows (prior $135.4 bln) at 16:00 ET
  • Friday: September Housing Starts (prior 1.356 mln) and Building Permits (prior 1.475 mln) at 8:30 ET