Bond Market Update

Recent Losses Reversed

• U.S. Treasuries recorded modest gains on Friday, as 10s and 30s rose off their lowest levels of the month while shorter tenors found support just above their October lows. The Friday advance unfolded in slow fashion after a night that featured more stimulus chatter in Asia with People's Bank of China Governor Pan saying that the reserve requirement ratio could be reduced again this year and that the loan prime rate will likely be lowered on Monday. Shorter tenors outperformed at the start, but the entire complex rallied in early trade. Today's economic data was limited to the Housing Starts (1.354 mln; Briefing.com consensus 1.350 mln) and Building Permits (1.428 mln; Briefing.com consensus 1.455 mln) report for September, which showed above-consensus starts coupled with some softness in permits. The pace of the advance slowed as the day went on with Treasuries spending the afternoon just below their highs. This left the market little changed for the week with the 2s10s spread compressing by a basis point to 12 bps. Crude oil widened this week's loss to $6.30/bbl, or 8.4%, while the U.S. Dollar Index fell 0.3% to 103.49, trimming this week's gain to 0.6%.
• Yield Check:
  • 2-yr: -4 bps to 3.95% (+1 bp this week)
  • 3-yr: -4 bps to 3.86% (UNCH this week)
  • 5-yr: -3 bps to 3.88% (UNCH this week)
  • 10-yr: -2 bps to 4.07% (UNCH this week)
  • 30-yr: -2 bps to 4.38% (UNCH this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP remained at 3.4% in the latest update.
  • U.S. authorities are reportedly investigating Taiwan Semiconductor Manufacturing (TSM) over alleged sales of chips to Huawei despite a ban that is in place.
  • European Central Bank policymaker Villeroy de Galhau said that the 2.0% inflation target should be reached earlier than expected.
  • Japan's new top currency diplomat said that moves in the yen are being closely watched after the currency weakened to 150/dollar, making for a continuation of a pullback from the September high in the 139 area.
  • China's Q3 GDP expanded 0.9% qtr/qtr (expected 1.0%; last 0.7%), growing 4.6% yr/yr, as expected (last 4.7%). September Fixed Asset Investment was up 3.4% yr/yr (expected 3.3%; last 3.4%), September Industrial Production was up 5.4% yr/yr (expected 4.6%; last 4.5%), September Retail Sales rose 3.2% yr/yr (expected 2.5%; last 2.1%), September Unemployment Rate fell to 5.1% from 5.3% (expected 5.3%), and September House Prices were down 5.8% yr/yr (last -5.3%).
  • Japan's September National CPI was down 0.3% m/m (last 0.5%) but up 2.5% yr/yr (last 3.0%). September National Core CPI was up 2.4% yr/yr (expected 2.3%; last 2.8%).
  • Hong Kong's September Unemployment Rate remained at 3.0%.
  • Eurozone's August Current Account surplus reached EUR31.5 bln (expected surplus of EUR42.2 bln; last surplus of EUR39.6 bln). August Construction Orders ticked up 0.1% m/m (last -0.5%).
  • U.K.'s September Retail Sales were up 0.3% m/m (expected -0.3%; last 1.0%), rising 3.9% yr/yr (expected 3.2%; last 2.3%). September Core Retail Sales were up 0.3% m/m (expected -0.3%; last 1.1%), rising 4.0% yr/yr (expected 3.2%; last 2.2%).
  • Spain's August trade deficit reached EUR4.8 bln (last deficit of EUR3.2 bln).
• Today's Data:
  • Housing starts decreased 0.5% month-over-month to a seasonally adjusted annual rate of 1.354 million units (Briefing.com consensus 1.350 million), though single-unit starts increased 2.7% month-over-month. Building permits decreased 2.9% month-over-month to a seasonally adjusted annual rate of 1.428 million (Briefing.com consensus 1.455 million) while single-unit permits were up 0.3%.
    • The key takeaway from the report is that the change single-unit starts and permits varied across regions after showing across-the-board growth in August.
• Commodities:
  • WTI crude: -2.1% to $69.16/bbl
  • Gold: +0.8% to $2730.20/ozt
  • Copper: +1.3% to $4.386/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0863
  • GBP/USD: +0.3% to 1.3042
  • USD/CNH: -0.2% to 7.1179
  • USD/JPY: -0.4% to 149.51
• The Week Ahead:
  • Monday: September Leading Indicators (Briefing.com consensus -0.3%; prior -0.2%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior -17.0%) at 7:00 ET; September Existing Home Sales (Briefing.com consensus 3.90 mln; prior 3.86 mln) at 10:00 ET; weekly crude oil inventories (prior -2.19 mln) at 10:30 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 246,000; prior 241,000) and Continuing Claims (prior 1.867 mln) at 8:30 ET; September New Home Sales (Briefing.com consensus 713,000; prior 716,000) at 10:00 ET; and weekly natural gas inventories (prior +76 bcf) at 10:30 ET
  • Friday: September Durable Orders (Briefing.com consensus -0.9%; prior 0.0%) and Durable Orders ex-transport (Briefing.com consensus -0.1%; prior 0.5%) at 8:30 ET; and final October University of Michigan Consumer Sentiment (Briefing.com consensus 68.9; prior 68.9) at 10:00 ET