Bond Market Update

Buyers back off

• U.S. Treasuries ended the cash session pretty much at their lows in price and highs in yield across the board. The selling began in the overnight trade and persisted during the cash session amid a dearth of buying interest as market participants looked to be pricing out a hard landing scenario for the U.S. economy. That perspective underpinned the dollar, which made nice strides against other major currencies in a relative growth trade. The U.S. Dollar Index was up 0.5% to 104.01. Overall, it was a slow news day, yet the PBOC made some headlines overnight by cutting the 1-yr and 5-yr loan prime rates by 25 basis points to 3.10% and 3.60%, respectively. This was larger than the 20 basis points expected by the market and at the upper end of Governor Pan's view that a rate cut would likely be on the order of 20-25 basis points..
• Yield Check:
  • 2-yr: +7 bps to 4.02%
  • 3-yr: +9 bps to 3.95%
  • 5-yr: +9 bps to 3.97%
  • 10-yr: +11 bps to 4.18%
  • 30-yr: +10 bps to 4.48%

• News:
  • The PBOC cut its 1-yr loan prime rate and 5-yr loan prime rate by 25 basis points to 3.10% and 3.60%, respectively. That was slightly more than the 20 bps expected by the market but in-line with Governor Pan's guidance last week that pointed to the likelihood of a 20-25 basis points cut.
  • Polling averages show Vice President Kamala Harris ahead marginally nationally, but former President Trump is ahead marginally in all seven swing states. All averages are within the margin of error, according to RealClear Politics.
  • South Korea's exports for the first 20 days of October were down 2.9% yr/yr with Bloomberg indicating the decline was led by oil products and mobile phones; however, chip exports were up strongly. South Korea's imports were down 10.1% yr/yr.
  • President Biden will extend student loan payment pause by 6 months for SAVE plan, according to CNBC.
  • Dallas Fed President Logan (non-FOMC voter) says, "If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals."
  • US banks mulling interest rate reductions on corporate deposits, according to FT.
  • Fitch Ratings affirmed Italy's sovereign rating at BBB, but revised its outlook to positive from stable.
  • Israel strikes Lebanon in pursuit of degrading Hezbollah's financial arm
  • Boeing (BA): IAM/Boeing negotiated resolution contract 2024; received a negotiated proposal and resolution to end the strike
• Today's data:
  • The September Leading Economic Index was down 0.5% month-over-month (Briefing.com consensus -0.3%) following a downwardly revised 0.3% decline (from -0.2%) in August.
• Commodities:
  • WTI crude: +2.1% to $70.05/bbl
  • Gold: +0.3% to $2738.40/ozt
  • Copper: -0.7% to $4.36/lb
• Currencies:
  • EUR/USD: -0.5% to 1.0811
  • GBP/USD: -0.5% to 1.2977
  • USD/CNH: +0.3% to 7.1374
  • USD/JPY: +0.9% to 150.76
• The Day Ahead:
  • There is no U.S. economic data of note
  • 10:00 ET: Philadelphia Fed President Harker (non-FOMC voter)