Bond Market Update

Dealing with an Imbalance

• Today's economic data had a mostly pleasing hue, particularly the September Retail Sales Report. Industrial production was weak, but not as weak as it appeared given the temporary drag of the Boeing strike and the hurricanes. Initial jobless claims were better than feared. The Philadelphia Fed Index was stronger than expected. Business inventories and the NAHB Housing Market index were in-line with expectations.
• The balance of today's economic reports, however, has fostered a selling imbalance so to speak in the Treasury market. Yields are up across the curve as participants take stock of an economy that is still running well and contemplate the notion that perhaps the Fed won't need to cut rates as much as the market thinks.
• The fed funds futures market, however, continues to show a high probability (90.9%) of a 25-basis points cut at the November FOMC meeting and a high probability (77.2%) of another 25-basis points cut at the December FOMC meeting.
• The lone economic release on Friday's calendar is the September Housing Starts (Brieifng.com consensus 1350K; prior 1356K) and Building Permits (Briefing.com consensus 1455K; prior 1475K) Report, which will be released at 8:30 a.m. ET.
• Yield check:
  • 2-yr: +4 bps to 3.98%
  • 3-yr: +4 bps to 3.89%
  • 5-yr: +6 bps to 3.90%
  • 10-yr: +7 bps to 4.09%
  • 30-yr: +8 bps to 4.38%