Bond Market Update

Downward Trend Persists

• U.S. Treasuries retreated again on Wednesday with shorter tenors at the forefront of the midweek selling. The trading day started with relative weakness in the long end after a night that featured some more stimulus speculation in China and news that the International Monetary Fund nudged its global growth forecast down to 3.2% from 3.3% but raised its outlook for the U.S. to 2.8% from 2.6%. Treasuries added to their initial losses during the first 90 minutes of action, but climbed off morning lows after the Existing Home Sales report for September (3.84 mln; Briefing.com consensus 3.90 mln) was a bit shy of estimates. The post-data bounce was paced by longer tenors while continued pressure on the 2-yr note sent it to a fresh low in the early afternoon. The market faced some more selling after the U.S. Treasury reopened $13 bln in 20-yr bonds to poor demand, but 10s and 30s found support near their morning lows, inching back to their starting levels by the close while the front end finished on lows. Crude oil gave back the bulk of its gain from Tuesday while the U.S. Dollar Index rose 0.3% to 104.42.
• Yield Check:
  • 2-yr: +5 bps to 4.09%
  • 3-yr: +6 bps to 4.04%
  • 5-yr: +5 bps to 4.06%
  • 10-yr: +4 bps to 4.24%
  • 30-yr: +2 bps to 4.52%

• News:
  • The Bank of Canada lowered its policy rate by 50 basis points to 3.75%, as expected.
  • A Chinese think tank opined that CNY2 trln worth of special government bonds should be issued to create a market stabilization fund.
  • The IMF lowered its FY24 growth forecast for China to 4.8% from 5.0% while Japan's forecast was reduced to 0.3% from 0.7%. The FY24 forecast for the U.K. was raised to 1.1% from 0.7%.
  • China Securities Daily noted that about 500 domestic companies have announced buybacks over the past month.
  • South Korea is reportedly looking to provide support to chipmakers.
  • European Central Bank policymaker Villeroy de Galhau said that persistent inflation is no longer the only risk and that the risk of reducing rates too late could increase.
  • European Central Bank policymaker Patsalides said that the debate is starting about the current level of rates relative to the neutral level.
  • Deutsche Bank (DB) reported a Q3 profit but also increased its provision for credit losses.
  • South Korea's October Consumer Confidence hit 101.7 (last 100.0).
  • Singapore's September CPI was up 0.3% m/m (last 0.7%), rising 2.0% yr/yr (expected 1.9%; last 2.2%). September Core CPI was up 2.8 yr/yr (expected 2.7%; last 2.7%).
• Today's Data:
  • Existing home sales decreased 1.0% month-over-month in September to a seasonally adjusted annual rate of 3.84 million (Briefing.com consensus 3.90 million) from an upwardly revised 3.88 million (from 3.86 million) in August. Sales were down 3.5% from the same period a year ago.
    • The key takeaway from the report is that more inventory is becoming available, yet it is still a tight market, evidenced by the ongoing increase in the median home price and a very low mortgage delinquency rate.
  • The Federal Reserve's Beige Book for October reported little overall change in activity since early September. Most Districts saw weakening manufacturing activity while banking sector activity increased slightly. Loan demand was mixed and consumers shifted their preferences toward less expensive items. Employment increased slightly while inflation continued to moderate.
  • The weekly MBA Mortgage Index fell 6.7% to follow last week's 17.0% decrease. The Refinance Index fell 8.4% while the Purchase Index fell 5.1%.
  • Weekly crude oil inventories increased by 5.47 mln barrels after decreasing by 2.19 mln barrels a week ago. 
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.590% (4.531%).
    • Bid-to-cover: 2.59 (2.60).
    • Indirect bid: 67.9% (70.4%). 
    • Direct bid: 17.6% (17.6%).
• Commodities:
  • WTI crude: -1.2% to $70.81/bbl
  • Gold: -1.1% to $2730.00/ozt
  • Copper: -1.4% to $4.33/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0782
  • GBP/USD: -0.4% to 1.2925 
  • USD/CNH: UNCH at 7.1362
  • USD/JPY: +1.1% to 152.61
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 246,000; prior 241,000) and Continuing Claims (prior 1.867 mln)
  • 10:00 ET: September New Home Sales (Briefing.com consensus 713,000; prior 716,000)
  • 10:30 ET: Weekly natural gas inventories (prior +76 bcf)