Bond Market Update

Treasuries Struggle with Continued Pressure

• U.S. Treasuries finished October on a slightly lower note, capping a month that saw heavy selling, which lifted yields back to levels from early July. Treasuries started the Thursday session in the red, adding to their losses after the release of stubborn core PCE Price Index (2.7% yr/yr) that held steady for the third month in a row, a solid jobless claims report, and an unexpected slight moderation in the Employment Cost Index for Q3 (0.8%; Briefing.com consensus 1.0%; prior 0.9%). The market continued slipping through the release of the Chicago PMI for October (41.6; Briefing.com consensus 47.5; prior 46.6), even though that reading showed a deepening contraction in manufacturing activity in the Chicago region. The morning selling lifted yields on 5s and shorter tenors to fresh highs for the month while the 10-yr yield stopped just short of setting a new October high. The rest of the morning saw a rebound that helped Treasuries overtake their starting levels, though only the long bond made it into positive territory. Today's retreat in most tenors completed a month that featured strong selling as economic data remained resilient and former President Trump's odds of winning next week's election grew significantly. This month's selling was led by the belly of the curve while the 2s10s spread tightened by three basis points to 12 bps. Crude oil ($69.35/bbl) climbed, ending the pit session with a $1.22, or 1.8%, gain for the month, but rallied above $70/bbl in electronic trading after Axios reported that Iran is preparing a retaliatory strike against Israel from Iraqi territory. The U.S. Dollar Index was little changed at 103.96, staying just above its 200-day moving average (103.82) after gaining 3.2% this month.
• Yield Check:
  • 2-yr: +1 bp to 4.16% (+51 bps in October)
  • 3-yr: +1 bp to 4.13% (+56 bps in October)
  • 5-yr: +3 bps to 4.16% (+58 bps in October)
  • 10-yr: +2 bps to 4.28% (+48 bps in October)
  • 30-yr: -1 bp to 4.47% (+34 bps in October)

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was initiated at 2.7%.
  • The Bank of Japan maintained its 0.6% growth forecast for FY24/25 and raised the outlook for FY25/26 to 1.1% from 1.0%. Core CPI for both periods is expected at 1.9%.
  • China's October Manufacturing PMI hit 50.1 (expected 49.8; last 49.8) and Non-Manufacturing PMI hit 50.2 (expected 50.4; last 50.0).
  • Japan's September Industrial Production rose 1.4% m/m (expected 0.9%; last -3.3%) and September Retail Sales rose 0.5% yr/yr (expected 2.1%; last 3.1%). September Housing Starts were down 0.6% yr/yr (expected -4.2%; last -5.1%) and Construction Orders fell 21.3% yr/yr (last 8.7%).
  • South Korea's September Industrial Production was down 0.2% m/m (expected 1.2%; last 4.4%), falling 1.3% yr/yr (expected 0.2%; last 3.8%). September Retail Sales were down 0.4% m/m (last 1.7%).
  • Hong Kong's Q3 GDP contracted 1.1% qtr/qtr (expected 0.0%; last 0.3%) but was up 1.8% yr/yr (expected 3.1%; last 3.2%).
  • Australia's September Building Approvals were up 4.4% m/m (expected 2.2%; last -3.9%), rising 18.1% yr/yr (expected 7.9%; last 24.9%). September Retail Sales ticked up 0.1% m/m (expected 0.3%; last 0.7%). September Housing Credit was up 0.5% m/m (last 0.4%) and Private Sector Credit was also up 0.5% m/m, as expected (last 0.5%). Q3 Import Price Index fell 1.4% qtr/qtr (expected -0.2%; last 1.0%) and Export Price Index fell 4.3% qtr/qtr (last -5.9%).
  • New Zealand's October ANZ Business Confidence hit 65.7 (last 60.9).
  • Eurozone's September Unemployment Rate remained at 6.3% (expected 6.4%). Flash October CPI was up 0.3% m/m (last -0.1%), rising 2.0% yr/yr (expected 1.9%; last 1.7%). Flash Core CPI was up 0.2% m/m (last 0.1%), rising 2.7% yr/yr (expected 2.6%; last 2.7%).
  • Germany's September Retail Sales were up 1.2% m/m (expected -0.7%; last 1.2%), growing 3.8% yr/yr (expected 1.6%; last 2.5%). September Import Price Index was down 0.4% m/m, as expected (last -0.4%), falling 1.3% yr/yr (last 0.2%).
  • France's flash October CPI was up 0.2% m/m (expected 0.2%; last -1.2%), rising 1.2% yr/yr (expected 1.1%; last 1.1%). September PPI was down 0.1% m/m (last 0.3%), falling 7.0% yr/yr (last -6.3%).
  • Italy's September Unemployment Rate remained at 6.1% (expected 6.2%). Flash October CPI was unchanged m/m (expected -0.1%; last -0.2%), rising 0.9% yr/yr (expected 1.0%; last 0.7%).
  • Spain's August Current Account surplus reached EUR5.63 bln (last EUR5.79 bln).
• Today's Data:
  • Initial jobless claims for the week ending October 26 decreased by 12,000 to 216,000 (Briefing.com consensus 229,000). On an unadjusted basis, they totaled 200,132, a decrease of 3,349 from the prior week when seasonal factors expected an increase of 7,292. Continuing jobless claims for the week ending October 19 decreased by 26,000 to 1.862 million; however, the four-week moving average of 1,869,250 is the highest since November 27, 2021.
    • The key takeaway from the report is that layoff activity remains fairly subdued, yet it has been more challenging for laid-off workers to find new employment.
  • The Q3 Employment Cost Index increased 0.8% (Briefing.com consensus 1.0%), seasonally adjusted, for the 3-month period ending in September 2024. Wages and salaries increased 0.8% and benefit costs increased 0.8% from June 2024.
    • The key takeaway from the report is that compensation costs for civilian, private, and state and local government workers decelerated versus the 12-month period ending in September 2023, reflecting a moderation in wage inflation.
  • Personal income increased 0.3% month-over-month in September (Briefing.com consensus 0.4%) following a 0.2% increase in August. Personal spending increased 0.5% (Briefing.com consensus 0.4%) following an upwardly revised 0.4% increase (from 0.3%) in August. The PCE Price Index was up 0.2%, as expected, and up 2.1% year-over-year versus 2.3% in August. The core PCE Price Index, which excludes food and energy, was up 0.3% (Briefing.com consensus 0.2%) and up 2.7% year-over-year for the third straight month.
    • The key takeaway from the report is the stickiness in core PCE inflation, which is running comfortably above the Fed's 2% target. That will wash out any expectation for another aggressive rate cut by the Fed anytime soon and it will keep the debate alive as to whether the Fed should keep cutting rates.
  • The Chicago PMI hit 41.6 in October (Briefing.com consensus 47.5), down from 46.6 in September.
  • Weekly natural gas inventories increased by 78 bcf after increasing by 80 bcf a week ago.
• Commodities:
  • WTI crude: +1.1% to $69.35/bbl
  • Gold: -1.9% to $2749.30/ozt
  • Copper: -0.5% to $4.34/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0872
  • GBP/USD: -0.6% to 1.2885
  • USD/CNH: UNCH at 7.1233
  • USD/JPY: -0.8% to 152.03
• The Day Ahead:
  • 8:30 ET: October Nonfarm Payrolls (Briefing.com consensus 120,000; prior 254,000), Nonfarm Private Payrolls (Briefing.com consensus 105,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Unemployment Rate (Briefing.com consensus 4.1%; prior 4.1%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2)
  • 9:45 ET: Final October S&P Global U.S. Manufacturing PMI (prior 47.8)
  • 10:00 ET: September Construction Spending (Briefing.com consensus 0.0%; prior -0.1%) and October ISM Manufacturing Index (Briefing.com consensus 47.6%; prior 47.2%)