Bond Market Update

Updated: 17-Oct-24 15:23 ET

Treasury Market Summary

Feeling Growth Pressure

U.S. Treasuries saw broad-based selling pressure kick in today following the 8:30 a.m. ET release of stronger-than-expected September retail sales, better-than-feared weekly initial jobless claims, and an indication that manufacturing activity in the Philadelphia Fed region accelerated in October faster than anticipated. Most of the selling pressure was applied after those releases, and while it eased just a bit for shorter-dated securities over the remainder of the cash session, longer-dated securities pretty much finished on their lows in price and highs in yield. By and large, the ECB's decision to cut its key rates by 25 basis points was an afterthought, largely because that move was expected. Instead the market was left to consider a U.S. economy still running on a growth path (Atlanta Fed GDPNow model estimate for Q3 real GDP revised up to 3.4% from 3.2%) and the possibility that the Fed may be looking at a higher neutral rate than it thinks. The U.S. Dollar Index was up 0.2% to 103.81. The probability of a 25-basis points cut at the November FOMC meeting dipped to 88.3% today from 93.7% yesterday while the probability of another 25-basis points cut at the December FOMC meeting slipped to 72.0% from 85.6% yesterday, according to the CME FedWatch Tool.

Yield check:
- 2-yr: +4 bps to 3.98%
- 3-yr: +5 bps to 3.90%
- 5-yr: +7 bps to 3.91%
- 10-yr: +8 bps to 4.10%
- 30-yr: +9 bps to 4.39%
News:
- The ECB cut its key interest rates by 25 basis points, as expected, and ECB President Lagarde said risks to growth are tilted to the downside, which the market can construe as an opening for additional rate cuts
- Israel Defense Forces confirm death of Hamas Leader Yahya Sinwar; Israeli Prime Minister Benjamin Netanyahu says mission in Gaza is not over following death of Hamas leader Yahya Sinwar, according to Bloomberg
- Atlanta Fed GDPNow model estimate for Q3 real GDP growth revised up to 3.4% from 3.2% following retail sales and industrial production reports
- Vice President Kamala Harris in interview says her presidency will not be a continuation of President Biden, according to Fox News
- The final September CPI report for the eurozone provided the ECB with cover to cut rates, coming in at 1.7% yr/yr
- China's Housing Minister said the year-end loan quota for unfinished projects will be 4 trillion yuan compared to the 2.23 trillion that has been allocated as of October 16
- Japan reports first decline in exports (-1.7% yr/yr) in 10 months
- Nikkei revealed a poll that suggested the LDP is at risk of losing its majority in the lower house following the October 27 election
- Australia reported better-than-expected September employment data
Today's Data:
- Initial jobless claims for the week ending October 12 decreased by 19,000 to 241,000 (Briefing.com consensus 270,000). Continuing jobless claims for the week ending October 5 increased by 9,000 to 1.867 million.
  - The key takeaway from the report is that it is muddled by the effects of the hurricanes, yet it is being greeted with a sense of pleasant surprise that initial jobless claims were much better than feared.
- September retail sales increased 0.4% month-over-month (Briefing.com consensus 0.2%) following an unrevised 0.1% increase in August. Excluding autos, retail sales increased 0.5% month-over-month (Briefing.com consensus 0.1%) following an upwardly revised 0.2% increase (from 0.1%) in August. Control group sales, which factor into GDP computations, were up 0.7%.
  - The key takeaway from the report is that consumer spending on goods accelerated in September with notable increases seen in many discretionary categories like miscellaneous store retailers (+4.0%), clothing and clothing accessories (+1.5%), and food services and drinking places (+1.0%). This is a "no landing" type of report.
- The October Philadelphia Fed Index increased to 10.3 (Briefing.com consensus 4.0) from 1.7 in September, led by a jump in the new orders index to 14.2 from -1.5. The dividing line between expansion and contraction is 0.0.
  - The key takeaway from the report is that manufacturing activity in the Philadelphia Fed region accelerated in October with future indicators also suggesting more widespread expectations for growth over the next six months. Total industrial production decreased 0.3% month-over-month in September (Briefing.com consensus -0.1%) following a downwardly revised 0.3% increase (from 0.8%) in August. The capacity utilization rate fell to 77.5% (Briefing.com consensus 77.9%) from a downwardly revised 77.8% (from 78.0%) in August. Total industrial production declined 0.6% yr/yr while the capacity utilization rate was 2.2 percentage points below its long-run average.
    - The key takeaway from the report is that industrial production in September was pressured by two extraordinary factors, which implies a rebound in growth should follow as those extraordinary factors find correction. The Boeing strike held back growth by an estimated 0.3% and the effects of Hurricanes Helene and Milton subtracted an estimated 0.3%.
- August Business Inventories were up 0.3% month-over-month (Briefing.com consensus 0.3%); prior revised to 0.3% from 0.4%
- October NAHB Housing Market Index 43 (Briefing.com consensus 43); prior 41
- Weekly EIA Natural Gas Inventories showed a build of 76 bcf vs a build of 82 bcf last week
- Weekly EIA Crude Oil Inventories showed a draw of 2.19 mln barrels vs a build of 5.81 mln barrels last week
Commodities:
- WTI crude: +0.4% to $70.62/bbl
- Gold: +0.6% to $2708.40/ozt
- Copper: -0.9% to $4.33/lb
Currencies:
- EUR/USD: -0.3% to 1.0826
- GBP/USD: +0.1% to 1.3007
- USD/CNH: flat at 7.1386
- USD/JPY: +0.4% to 150.27
The Day Ahead:
- 08:30 ET: September Housing Starts (Briefing.com consensus 1350K; prior 1356K) and Building Permits (Briefing.com consensus 1455K; prior 1475K)
- 12:10 ET: Fed Governor Waller (FOMC voter) speaks