Bond Market Update

Bumpy Action Continues

• U.S. Treasuries retreated on Wednesday, making for the fourth consecutive reversal from the prior day's performance as the market pondered the impact of ongoing geopolitical fears, the aftermath of a major hurricane in the Southeast, and a dockworker strike along the East Coast. The trading day started with losses that were paced by longer tenors after a night that saw reduced volume once again due to holidays in China and India. Hong Kong's Hang Seng (+6.2%) returned from yesterday's closure with a big rally that featured continued strength among property names. Elevated geopolitical uncertainty remained in the background amid speculation that Israel is planning to retaliate against Iran for yesterday's missile strikes. Treasuries widened their opening losses during the first hour of action but found support once the 10-yr yield returned to last week's high while the 30-yr yield inched above its high from last week. Treasuries began rising off lows in the late morning, continuing their rebound into the afternoon, which returned yields to their starting levels. Crude oil reached a two-week high before narrowing its gain while the U.S. Dollar Index rose 0.5% to 101.67, largely thanks to a near 2.0% jump in the dollar against the yen.
• Yield Check:
  • 2-yr: +2 bps to 3.64%
  • 3-yr: +3 bps to 3.55%
  • 5-yr: +3 bps to 3.55%
  • 10-yr: +4 bps to 3.79%
  • 30-yr: +5 bps to 4.13%

• News:
  • The Central Bank of Iceland unexpectedly lowered its policy rate by 25 bps to 9.00%, representing the first rate cut since the pandemic.
  • Germany's Machinery and Equipment Manufacturers Association said that August orders were up 7% thanks to 13% growth in foreign orders while orders from within the eurozone fell 7% yr/yr.
  • Moody's lowered Israel's rating to Baa1 from A2 with a Negative outlook due to intensifying geopolitical risk.
  • The Bank of Japan confirmed that bond purchases will be reduced this month. 
  • Japan's Finance Minister Kato said that he has been instructed by the prime minister to pursue more wage hikes.
  • Japan's September Household Confidence rose to 36.9 from 36.7 (expected 37.1).
  • South Korea's September CPI was up 0.1% m/m (last 0.4%), rising 1.6% yr/yr (last 2.0%). September Manufacturing PMI hit 48.3 (last 51.9).
  • Australia's September AIG Construction Index improved to -19.8 from -38.1 and AIG Manufacturing Index fell to -33.6 from -30.8. · Eurozone's August Unemployment Rate remained at 6.4%, as expected.
  • France's August government budget deficit reached EUR171.9 bln (last deficit of EUR156.9 bln).
  • Italy's August Unemployment Rate fell to 6.2% from 6.4% (expected 6.5%).
  • Spain's September unemployment increased by 3,200 (expected 12,100; last 21,900).
• Today's Data:
  • The ADP Employment Change report pointed to the addition of 143,000 nonfarm payrolls in September (Briefing.com consensus 120,000) while the August increase was revised up to 103,000 from 99,000.
  • The weekly MBA Mortgage Index fell 1.3% to follow last week's 11.0% increase. The Refinance Index was down 3.0% while the Purchase Index rose 0.7%.
  • Weekly crude oil inventories increased by 3.89 mln barrels after decreasing by 4.47 mln barrels a week ago.
• Commodities:
  • WTI crude: +0.7% to $70.20/bbl
  • Gold: -0.7% to $2670.90/ozt
  • Copper: +2.0% to $4.65/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1038
  • GBP/USD: -0.2% to 1.3260
  • USD/CNH: +0.2% to 7.0387
  • USD/JPY: +1.9% to 146.35
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 223,000; prior 218,000) and Continuing Claims (prior 1.834 mln)
  • 9:45 ET: Final September S&P Global U.S. Services PMI (prior 55.7)
  • 10:00 ET: August Factory Orders (Briefing.com consensus 0.1%; prior 5.0%) and September ISM Non-Manufacturing Index (Briefing.com consensus 51.6%; prior 51.5%)
  • 10:30 ET: Weekly natural gas inventories (prior +47 bcf)