Bond Market Update

Flatter

• U.S. Treasuries saw a curve flattening trade on Tuesday in response to easing inflation angst that flowed from reports that Israel is going to hit military targets, as opposed to oil and/or nuclear facilities, in its retaliation for Iran's missile strike, a Wall Street Journal report that China is aiming to avert a financial crisis with its stimulus, not massively stimulate demand, and the IEA forecasting a large oil surplus in 2025. WTI crude futures settled the session 4.4% lower at $70.66/bbl and copper futures dropped 1.4% to $4.33/lb. The back end of the curve, which is more sensitive to inflation pressures, led today's gains while the front end ran in place for the most part.

• Yield check:
  • 2-yr: +1 bp to 3.95%
  • 3-yr: unch at 3.86%
  • 5-yr: -2 bps to 3.86%
  • 10-yr: -3 bps to 4.04%
  • 30-yr: -5 bps to 4.33%
• News:
  • The Wall Street Journal reported that President Xi's intention is to prevent a financial crisis but not massively stimulate demand
  • Israel Prime Minister Benjamin Netanyahu told US that Israel will not strike oil or nuclear targets in Iran, but will strike military targets in Iran, according to Washington Post
  • The Biden administration mulling capping exports of advanced AI chips to certain nations, with a focus on Persian Gulf countries, according to Bloomberg
  • Semiconductor stocks sink after semiconductor equipment maker ASML (ASML) reports disappointing Q3 results and cutting 2025 guidance
  • San Francisco Fed President Daly (FOMC voter) affirms September rate cut as 'right-sizing' amid easing inflation pressures and strong job market
  • Caixin reports that China is considering a plan to issue up to CNY6 trillion ($846 billion) in ultra long-term bonds over three years to help local governments deal with off-balance sheet debt
  • The National Retail Federation today forecast that winter holiday spending is expected to grow between 2.5% and 3.5% over 2023. That equates to between $979.5 billion and $989 billion in total holiday spending in November and December.
  • NY Fed says median inflation expectations remained unchanged at 3.0% at the one-year horizon, increased to 2.7% from 2.5% at the three-year horizon, and increased to 2.9% from 2.8% at the five-year horizon.
  • Former President Trump in Bloomberg interview says Fed Chair Jerome Powell dropped rates too much in 2020; says a president should be able to give his or her opinion to Fed on interest rates, but he or she shouldn't be allowed to order it
  • Bank of America (BAC) CEO in CNBC interview says "no landing" for the economy might be the best choice right now
  • Prime Minister Ishiba highlighted a supplementary budget for FY25 that would boost funds supporting an economic package
  • Vice President Kamala Harris announces proposals for black men and their families; will provide 1 million forgivable loans up to $20,000 to black entrepreneurs; Legalize marijuana at the federal level; Supporting a regulatory framework for cryptocurrency (all of this requires congressional approval)
  • France and Spain's final September CPI readings maintained their monthly deflation print, furthering the market's view that the ECB will cut rates again this week
  • The UK saw a dip in its unemployment rate for August, but a larger than expected increase in its claimant count
  • Germany's October ZEW Economic Sentiment 13.1 (expected 10.2; last 3.6)
• Today's Data:
  • The October New York Fed Empire Manufacturing Survey was a mixed bag. The headline print of -11.9 (Briefing.com consensus 2.0; prior 11.5) was ugly, led by a drop in new orders (to -10.2 from 9.4). The dividing line between expansion and contraction is 0.0. An offset to the disappointing headline print was the uptick in the indexes for number of new employees (to 4.1 from -5.7) and the average employee workweek (to 4.7 from 2.9).
• Commodities:
  • WTI crude: -4.4% to $70.66/bbl
  • Gold: +0.5% to $2679.20/ozt
  • Copper: -1.4% to $4.33/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0888
  • GBP/USD: +0.1% to 1.3068
  • USD/CNH: +0.4% to 7.1254
  • USD/JPY: -0.3% to 149.25
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (Prior -5.1%)
  • 08:30 ET: September Import Prices (Prior 0.8%) and Import Prices ex-oil (Prior -0.1%); September Export Prices (Prior-0.7%) and Export Prices ex-agricultural products (Prior -0.6%)
  • 10:30 ET: EIA Crude Oil Inventories (Prior +5.81M)