Bond Market Update

Down Week Ends on Low Note

• U.S. Treasuries finished a down week on a lower note after giving back their modest early gains. The Treasury complex attempted to build on yesterday's rise off October lows with some help from a Durable Orders report for September, which was a bit better than expected (-0.8%; Briefing.com consensus -0.9%) but also contained a sharp downward revision to August's reading (to -0.8% from 0.0%). The early advance briefly pressured yields on 10s and 30s past lows from Thursday, but that's where resistance was found. The market began slipping from highs about an hour after the cash start, assisted by an upward revision to the University of Michigan's Consumer Sentiment report for October (70.5; Briefing.com consensus 70.1). Treasuries continued backtracking through the rest of the trading day but 10s and 30s still finished above their lows from Wednesday while the 2-yr note essentially finished at a fresh low for the week. This week's selling followed a range-bound showing during the previous week and it expanded the 2s10s spread by a basis points to 13 bps. Crude oil returned to its 50-day moving average (71.74) while the U.S. Dollar Index rose 0.2% to 104.27, gaining 0.8% for the week.
• Yield Check:
  • 2-yr: +3 bps to 4.10% (+15 bps this week)
  • 3-yr: +3 bps to 4.04% (+18 bps this week)
  • 5-yr: +3 bps to 4.05% (+17 bps this week)
  • 10-yr: +3 bps to 4.23% (+16 bps this week)
  • 30-yr: +3 bps to 4.50% (+12 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 3.3% from 3.4% in the previous estimate.
  • The People's Bank of China left its medium-term lending facility rate at 2.0%.
  • Reserve Bank of Australia Governor Bullock said that inflation will need another year or two to return to target.
  • China's agriculture ministry expects a bumper grain harvest this fall.
  • Chinese automakers have reportedly been instructed to stop expansion into the EU due to the ongoing tariff dispute.
  • European Central Bank Chief Economist Lane said that the disinflation process is on track, expected to reach target in 2025.
  • The U.K.'s Autumn Budget Statement will be presented on October 30 and there is speculation that capital gains taxes could be increased.
  • China's September FDI was down 30.4% YTD (last -31.5%). 
  • Japan's October Tokyo CPI was up 1.8% yr/yr (last 2.1%) and Tokyo Core CPI was also up 1.8% yr/yr (expected 1.7%; last 2.0%). October Corporate Services Price Index was up 2.6% yr/yr (expected 2.7%; last 2.7%). August Leading Index hit 106.9 (expected 106.7; last 109.3) and Coincident Indicator was down 3.2% m/m (expected -3.7%; last 3.1%).
  • Singapore's Q3 URA Property Index was down 0.7% qtr/qtr (expected -1.1%; last -1.1%). September Industrial Production was unchanged m/m (expected -2.8%; last 6.9%), rising 9.8% yr/yr (expected 3.5%; last 22.0%).
  • Eurozone's September M3 Money Supply was up 3.2% yr/yr (expected 2.9%; last 2.9%). September Private Sector Loans were up 0.7% yr/yr (expected 0.8%; last 0.6%) and loans to nonfinancials rose 1.1% (last 0.8%).
  • Germany's October ifo Business Climate Index hit 86.5 (expected 85.6; last 85.4). October Current Assessment rose to 85.7 from 84.4 (expected 84.4) and Business Expectations rose to 87.3 from 86.4 (expected 86.8).
  • France's October Consumer Confidence fell to 94 from 95, as expected.
  • Italy's October Business Confidence fell to 85.8 from 86.6 (expected 87.0) and Consumer Confidence fell to 97.4 from 98.3 (expected 98.5).
  • Spain's September PPI was down 5.2% yr/yr (last -1.3%). Q3 Unemployment Rate dipped to 11.21% from 11.27% (expected 11.40%).
• Today's Data:
  • Durable goods orders declined 0.8% month-over-month in September (Briefing.com consensus -0.9%) following a downwardly revised 0.8% decline (from 0.0%) in August. Excluding transportation, durable goods orders increased 0.4% month-over-month (Briefing.com consensus -0.1%) following an upwardly revised 0.6% increase (from 0.5%) in August.
    • The key takeaway from the report is that it had a split growth personality. A 0.5% increase in nondefense capital goods orders excluding aircraft conveyed a pickup in business spending, yet the 0.3% decline in shipments of nondefense capital goods orders excluding aircraft, which factors into GDP computations, declined 0.3% on the heels of a 0.1% decline in August and a 0.4% decline in July.
  • The final October University of Michigan index of Consumer Sentiment increased to 70.5 (Briefing.com consensus 70.1) from the preliminary reading of 68.9. The final reading for September was 70.1. In the same period a year ago, the index stood at 63.8.
    • The key takeaway from the report is that consumer sentiment increased for the third consecutive month in spite of the election uncertainty.
• Commodities:
  • WTI crude: +2.2% to $71.77/bbl
  • Gold: +0.2% to $2754.80/ozt
  • Copper: +0.2% to $4.37/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0799
  • GBP/USD: -0.1% to 1.2964
  • USD/CNH: +0.2% to 7.1334
  • USD/JPY: +0.4% to 152.35
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: August FHFA Housing Price Index (prior 0.1%) and August S&P Case-Shiller Home Price Index (prior 5.9%) at 9:00 ET; and October Consumer Confidence (prior 98.7) and September job openings (prior 8.040 mln) at 10:00
  • Wednesday: Weekly MBA Mortgage Index (prior -6.7%) at 7:00 ET; October ADP Employment Change (prior 143,000) at 8:15 ET; advance Q3 GDP (prior 3.0%), advance Q3 GDP Chain Deflator (prior 2.5%), advance September goods trade balance (prior -$94.3 bln), advance Retail Inventories (prior 0.5%), and advance Wholesale Inventories (prior 0.2%) at 8:30 ET; September Pending Home Sales (prior 0.6%) at 10:00 ET; and weekly crude oil inventories (prior +5.47 mln) at 10:30 ET
  • Thursday: September Personal Income (prior 0.2%), Personal Spending (prior 0.2%), PCE Prices (prior 0.1%), and Core PCE Prices (prior 0.1%), Q3 Employment Cost Index (prior 0.9%), weekly Initial Claims (prior 227,000), and Continuing Claims (prior 1.897 mln) at 8:30 ET; and weekly natural gas inventories (prior +80 bcf) at 10:30 ET
  • Friday: October Nonfarm Payrolls (prior 254,000), Nonfarm Private Payrolls (prior 223,000), Average Hourly Earnings (prior 0.4%), Unemployment Rate (prior 4.1%), and Average Workweek (prior 34.2) at 8:30 ET; final October S&P Global U.S. Manufacturing PMI (prior 47.8) at 9:45 ET; September Construction Spending (prior -0.1%) and October ISM Manufacturing Index (prior 47.2%) at 10:00 ET