Bond Market Update

 Longer Tenors Defend Gains as GDP Decelerates

• U.S. Treasuries finished Wednesday on a mixed note after a bumpy session that featured an early extension of Tuesday's bounce and an intraday pullback from highs. Treasuries were on course for a firmly higher open after a busy night on the global economic front. The overnight data slate included Germany's Q3 GDP report, which showed unexpected growth that helped avoid a technical recession and a reacceleration in Germany's October CPI to 2.0% yr/yr from 1.6%. Treasuries faced some pressure at the outset of the cash session due to a strong ADP Employment Change report for October (233,000; Briefing.com consensus 105,000) while the advance reading of Q3 GDP showed a deceleration in the growth rate to 2.8% (Briefing.com consensus 3.0%) from 3.0% in Q2. The early weakness found support shortly after the release of the GDP report, with the market rising steadily through the next 90 minutes of trade. Treasuries reached highs just as the market received a surprisingly strong Pending Home Sales report for September (7.4%; Briefing.com consensus 2.5%), spending the better part of the next 90 minutes in a retreat that produced fresh session lows, though the long bond was able to stay out of the red. The volatile action subsided during the second half of the session, though shorter tenors gravitated back to their lowest levels of the day while 10s and 30s outperformed, hanging onto gains. Crude oil pulled away from a one-month low while the U.S. Dollar Index fell 0.3% to 103.98 with its 200-day moving average (103.82) looming below.
• Yield Check:
  • 2-yr: +3 bps to 4.15%
  • 3-yr: +4 bps to 4.12%
  • 5-yr: +2 bps to 4.13%
  • 10-yr: -1 bp to 4.27%
  • 30-yr: -4 bps to 4.48%

• News:
  • The U.S. Treasury announced the issuance of $125 bln worth of 3-, 10-, and 30-yr debt, to be auctioned between November 4 and November 6.
  • There is growing speculation that Germany's ruling coalition will not survive a full term, resulting in elections in early 2025.
  • The U.K. is seeking GBP40 bln from new taxes, according to the Autumn Budget.
  • The EU announced new tariffs on electric vehicle imports from China.
  • China's National People's Congress is expected to approve next week the issuance of more than CNY10 trln of extra debt over the next few years.
  • Japan's October Household Confidence fell to 36.2 from 36.9 (expected 36.7).
  • Australia's Q3 CPI was up 0.2% qtr/qtr (expected 0.3%; last 1.0%), rising 2.8% yr/yr (expected 2.3%; last 3.8%).
  • Singapore's September Bank Lending reached SGD808.8 bln (last SGD800.0 bln). Q3 Business Expectations fell to 10.0 from 23.0.
  • Eurozone's Q3 GDP grew 0.4% qtr/qtr (expected 0.2%; last 0.2%), expanding 0.9% yr/yr (expected 0.8%; last 0.6%). October Business and Consumer Survey fell to 95.6 from 96.3 (expected 96.3).
  • Germany's Q3 GDP expanded 0.2% qtr/qtr (expected -0.1%; last -0.1%) but was down 0.2% yr/yr (expected -0.3%; last 0.0%). October Unemployment increased by 27,000 (expected 15,000; last 17,000) and Unemployment Rate rose to 6.1% from 6.0%, as expected. October CPI was up 0.4% m/m (expected 0.2%; last 0.0%), rising 2.0% yr/yr (expected 1.8%; last 1.6%).
  • France's Q3 GDP grew 0.4% qtr/qtr (expected 0.3%; last 0.2%), expanding 1.3% yr/yr (last 1.0%). September Consumer Spending was up 0.1% m/m (expected 0.1%; last 0.4%).
  • Italy's Q3 GDP was unchanged qtr/qtr (expected 0.2%; last 0.2%), rising 0.4% yr/yr (expected 0.7%; last 0.6%).
  • Spain's October CPI was up 0.6% m/m (expected 0.5%; last -0.6%), rising 1.8% yr/yr (expected 1.7%; last 1.5%). October Core CPI was up 2.5% yr/yr (last 2.4%). Q3 GDP expanded 0.8% qtr/qtr (expected 0.6%; last 0.8%), growing 3.4% yr/yr (expected 3.0%; last 3.2%).
  • Swiss October KOF Leading Indicators fell to 99.5 from 104.5 (expected 105.1). October ZEW Expectations ticked up to -7.7 from -8.8.
• Today's Data:
  • Real GDP increased at annual rate of 2.8% in the third quarter (Briefing.com consensus 3.0%), a slight deceleration from the 3.0% growth rate registered in the second quarter. The GDP Price Deflator was up 1.8% (Briefing.com consensus 2.3%) versus 2.5% in the second quarter.
    • The key takeaway from the report is that GDP growth was powered by healthy levels of consumer spending. Personal consumption expenditures increased 3.7%. That was the strongest growth rate since the first quarter of 2023 and well in excess of the prior 10-quarter average of 2.3%. The PCE component contributed 2.46 percentage points to real GDP growth in the third quarter.
  • Private-sector payrolls increased by 233,000 (Briefing.com consensus 105,000), according to ADP, following an upwardly revised 159,000 (from 143,000) in September.
    • The key takeaway from the report is that the payroll gains were broad based by sector, region, and establishment size, underscoring the point that economic activity remains solid and not at all consistent with an economy on the cusp of a recession.
  • Pending Home Sales were up 7.4% in September (Briefing.com consensus 2.5%) after increasing by 0.6% in August.
    • The weekly MBA Mortgage Index was down 0.1% to follow last week's 6.7% decrease. The Refinance Index was down 6.3% while the Purchase Index was up 5.0%.
  • Weekly crude oil inventories decreased by 515,000 barrels after increasing by 5.47 mln barrels during the previous week.
• Commodities:
  • WTI crude: +2.1% to $68.59/bbl
  • Gold: +0.7% to $2801.10/ozt
  • Copper: UNCH at $4.36/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0863
  • GBP/USD: -0.3% to 1.2977
  • USD/CNH: -0.2% to 7.1264
  • USD/JPY: UNCH at 153.35
• The Day Ahead:
  • 8:30 ET: September Personal Income (Briefing.com consensus 0.4%; prior 0.2%), Personal Spending (Briefing.com consensus 0.4%; prior 0.2%), PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), Q3 Employment Cost Index (Briefing.com consensus 1.0%; prior 0.9%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.897 mln)
  • 9:45 ET: October Chicago PMI (Briefing.com consensus 47.5; prior 46.6)
  • 10:30 ET: Weekly natural gas inventories (prior +80 bcf)