Bond Market Update

Three-Day Skid Halted

• U.S. Treasuries climbed on Thursday, rising off their lowest levels of the month after resisting an early reversal attempt. The trading day started with solid gains across the curve after three consecutive retreats. The belly led the rebound in overnight trade, but longer tenors took the lead during the session while the short end struggled to stay positive. The higher start followed an overnight release of flash Manufacturing and Services PMI readings from major economies with Japan seeing its fourth consecutive month of contracting activity in manufacturing (49.0) while Australia's manufacturing sector contracted for the ninth month in a row (46.6). Eurozone's Manufacturing PMI (45.9) contracted at a slower-than-expected pace while Services PMI growth (51.2) was shy of estimates, which fueled some speculation about a 50-basis point rate cut from the European Central Bank in December. Treasuries backtracked from their higher start in early action, assisted by a better-than-expected weekly jobless claims report (227,000; Briefing.com consensus 246,000) and an above-consensus New Homes Sales report for September (738,000; Briefing.com consensus 713,000). The market also received flash October PMI readings from the U.S. with the Manufacturing PMI (47.8; prior 47.3) showing a slower pace of contraction than what was seen in September while Services PMI (55.3; prior 55.2) accelerated slightly. The morning pullback found support near yesterday's closing levels and was followed by a push to fresh highs that left 5s and 10s near their opening levels while the long bond finished not far below its session high. Crude oil found resistance at its 50-day moving average (71.86) while the U.S. Dollar Index fell 0.4% to 104.06, reversing from its highest level since the end of July.
• Yield Check:
  • 2-yr: -2 bps to 4.07%
  • 3-yr: -3 bps to 4.01%
  • 5-yr: -4 bps to 4.02%
  • 10-yr: -4 bps to 4.20%
  • 30-yr: -5 bps to 4.47%

• News:
  • European Central Bank policymaker Centeno said that the central bank is behind the curve when it comes to its easing efforts.
  • Barclays (BCS) increased its net interest income guidance for its British unit.
  • Japan's flash October Manufacturing PMI hit 49.0 (expected 49.9; last 49.7) and flash Services PMI hit 49.3 (last 53.1).
  • South Korea's Q3 GDP was up 0.1% qtr/qtr (expected 0.5%; last -0.2%), rising 1.5% yr/yr (expected 2.0%; last 2.3%).
  • India's flash October Manufacturing PMI hit 57.4 (last 56.5) and flash Services PMI hit 57.9 (last 57.7).
  • Australia's flash October Manufacturing PMI hit 46.6 (last 46.7) and flash Services PMI hit 50.6 (last 50.5). 
  • Eurozone's flash October Manufacturing PMI hit 45.9 (expected 45.1; last 45.0) and flash Services PMI hit 51.2 (expected 51.5; last 51.4).
  • Germany's flash October Manufacturing PMI hit 42.6 (expected 40.7; last 40.6) and flash Services PMI hit 51.4 (expected 50.6; last 50.6).
  • U.K.'s flash October Manufacturing PMI hit 50.3 (expected 51.5; last 51.5) and flash Services PMI hit 51.8 (expected 52.3; last 52.4). October CBI Industrial Trends Orders rose to -27 from -35 (expected -28).
  • France's flash October Manufacturing PMI hit 44.5 (expected 44.9; last 44.6) and flash Services PMI hit 48.3 (expected 49.8; last 49.6). October Business Survey fell to 92 from 99 (expected 98).
• Today's Data:
  • New home sales increased 4.4% month-over-month in September to a seasonally adjusted annual rate of 738,000 units (Briefing.com consensus 713,000) from a downwardly revised 709,000 (from 716,000) in August. On a year-over-year basis, new home sales were up 6.3%.
    • The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, likely enjoyed a tailwind from the drop in mortgage rates seen in September ahead of the FOMC decision, but with rates higher now than they were before the September 18 rate cut, it is reasonable to think October new home sales won't look as good.
  • Initial jobless claims for the week ending October 19 decreased by 15,000 to 227,000 (Briefing.com consensus 246,000). On an unadjusted basis, initial claims totaled 202,635, a decrease of 22,634 from the previous week. Continuing jobless claims for the week ending October 12 increased by 28,000 to 1.897 million.
    • The key takeaway from the report is that, while it might still contain some noise from the effects of the hurricanes, the initial claims data from both a seasonally adjusted and unadjusted basis connote a labor market that is still operating on solid ground that is a long way from recession-like territory.
  • The S&P Global U.S. Manufacturing PMI hit 47.8 in the flash reading for October, up from 47.3 in the final September reading.
  • The S&P Global U.S. Services PMI hit 55.3 in the flash reading for October, up from 55.2 in the final September reading.
  • Weekly natural gas inventories increased by 80 bcf after increasing by 76 bcf a week ago.
• Commodities:
  • WTI crude: -0.9% to $70.18/bbl
  • Gold: +0.7% to $2748.80/ozt
  • Copper: +0.5% to $4.351/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0824
  • GBP/USD: +0.5% to 1.2974
  • USD/CNH: -0.1% to 7.1256
  • USD/JPY: -0.6% to 151.78
• The Day Ahead:
  • 8:30 ET: September Durable Orders (Briefing.com consensus -0.9%; prior 0.0%) and Durable Orders ex-transport (Briefing.com consensus -0.1%; prior 0.5%)
  • 10:00 ET: Final October University of Michigan Consumer Sentiment (Briefing.com consensus 68.9; prior 68.9)