Bond Market Update

Struggling for Support

• U.S. Treasuries started the new week on a lower note, making for a continuation of a slide that started on September 17 and accelerated in early October. The trading day started with losses that pushed yields on 5s and shorter tenors to fresh highs for the month while yields on 10s and 30s tagged new October highs as the day went on. The lower start followed a weekend that saw a Friday Israeli attack on Iran, but no further escalation, which invited pressure on the price of oil. The weekend also featured the release of a three-hour podcast interview with former President Trump, in which the potential of next week's election confirmed that he is entertaining the idea of replacing income taxes with tariffs. Treasuries attempted to bounce off their starting lows but ran into mid-morning selling pressure that persisted into midday trade. The selling continued through a $69 bln 2-yr note auction, which met poor demand, with a modest rebound after a $70 bln 5-yr note sale priced worse than expected, but featured decent internals. Following today's close, the U.S. Treasury announced that borrowing in Q4 is expected to reach $546 bln, $19 bln below the prior estimate. The borrowing estimate for Q1 was set at $823 bln. Crude oil finished the pit session just $1/bbl above its October low, while the U.S. Dollar Index rose 0.1% to 104.31.
• Yield Check:
  • 2-yr: +4 bps to 4.14%
  • 3-yr: +5 bps to 4.09%
  • 5-yr: +6 bps to 4.11%
  • 10-yr: +5 bps to 4.28%
  • 30-yr: +3 bps to 4.53%

• News:
  • Moody's affirmed France's Aa2 rating but lowered the outlook to Negative from Stable.
  • European Central Bank President Lagarde said that disinflation is on track, though a temporary inflationary uptick is expected in Q4 due to base effects related to energy prices.
  • Volkswagen is considering cost-saving measures, including wage cuts and freezes.
  • The People's Bank of China launched a reverse repurchase facility aimed at maintaining liquidity.
  • China's National People's Congress will be held between November 4 and 8.
  • Japan's Prime Minister Ishiba is at risk of becoming of losing his post after the ruling coalition lost majority in the lower house.
  • China's September Industrial Profit was down 3.5% YTD (last 0.5%).
  • Hong Kong's September trade deficit reached HKD53.2 bln (last deficit of HKD33.1 bln) as imports grew 1.4% m/m (last 7.9%) and exports rose 4.7% m/m (last 6.4%).
  • Spain's September Retail Sales were up 4.1% yr/yr (last 2.4%).
• Today's Data:
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.130% (4.521%).
    • Bid-to-cover: 2.50 (2.62).
    • Indirect bid: 58.2% (65.0%).
    • Direct bid: 23.8% (20.2%).
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.138% (4.213%). 
    • Bid-to-cover: 2.39 (2.39).
    • Indirect bid: 76.4% (66.7%).
    • Direct bid: 9.5% (17.7%).
• Commodities:
  • WTI crude: -6.1% to $67.39/bbl
  • Gold: +0.1% to $2756.80/ozt
  • Copper: -0.2% to $4.36/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0813
  • GBP/USD: +0.1% to 1.2972
  • USD/CNH: +0.2% to 7.1447
  • USD/JPY: +0.7% to 153.23
• The Day Ahead:
  • 9:00 ET: August FHFA Housing Price Index (prior 0.1%) and August S&P Case-Shiller Home Price Index (Briefing.com consensus 5.1%; prior 5.9%)
  • 10:00 ET: October Consumer Confidence (Briefing.com consensus 99.0; prior 98.7) and September job openings (prior 8.040 mln)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results