Bond Market Update

Pullback Deepens

• U.S. Treasuries began the week with an extension of their sizable losses from the past three days with shorter tenors leading the Monday retreat. Treasuries slumped out of the gate after another overnight holiday closure in China, though the focus began shifting to a press briefing that will be given by China's National Development and Reform Commission tomorrow about implementation of new stimulus measures. That gave global markets the chance to continue reacting to Friday's strong Employment Situation report for September (254,000; Briefing.com consensus 165,000), which erased the remaining hopes for a 50-bps rate cut on November 7. The 5-yr note and shorter tenors underperformed at the start, but they spent the day in a slow uptick off their opening lows while 10s and 30s continued sliding into the early afternoon. The early weakness in shorter tenors briefly inverted the 2s10s spread, but the intraday outperformance up front reversed that dynamic. Today's slide sent the 2-yr yield to its highest level since late August while yields on longer tenors are back at levels from the start of August. Crude oil rallied toward its 200-day moving average (77.43) with ongoing geopolitical concerns contributing to the newfound strength while the U.S. Dollar Index was little changed at 102.49, holding at a three-week high.
• Yield Check:
  • 2-yr: +7 bps to 4.00%
  • 3-yr: +6 bps to 3.90%
  • 5-yr: +6 bps to 3.87%
  • 10-yr: +5 bps to 4.03%
  • 30-yr: +4 bps to 4.31%

• News:
  • The chief of staff for British Prime Minister Starmer resigned as part of a cabinet reshuffle.
  • European Central Bank policymaker Villeroy de Galhau said that the ECB is likely to cut rates again in October due to the rising risk of undershooting the 2.0% inflation target.
  • Germany's Economy Ministry expects that domestic GDP will contract 0.2% in 2024.
  • Officials from China's National Development and Reform Commission will speak to the press about stimulus measures tomorrow.
  • Press reports from China have indicated some growth in home sales during the recent holiday week. 
  • Bank of Japan's quarterly regional economic report maintained its view of seven regions while the assessment for two regions increased.
  • The Reserve Bank of New Zealand shadow board is split regarding the size of the expected rate cut on Wednesday.
  • China's September FX Reserves reached $3.316 trln (expected $3.30 trln; last $3.288 trln).
  • Japan's August Leading Index fell to 106.7 from 109.3 (expected 107.2) and Coincident Indicator fell 3.7% m/m (last 3.1%). September FX Reserves reached $1.25 trln (last $1.24 trln).
  • South Korea's September FX Reserves reached $419.97 bln (last $415.92 bln).
  • Hong Kong's September FX Reserves reached $422.80 bln (last $423.50 bln).
  • Singapore's September FX Reserves reached $389.8 bln (last $384.6 bln).
  • Australia's October MI Inflation Gauge was up 0.1% m/m (last -0.1%).
  • Eurozone's October Sentix Investor Confidence rose to -13.8 from -15.4 (expected -14.6). August Retail Sales were up 0.2% m/m, as expected (last 0.0%), rising 0.8% yr/yr (expected 1.0%; last -0.1%).
  • Germany's August Factory Orders were down 5.8% m/m (expected -1.9%; last 3.9%).
  • U.K.'s September Halifax House Price Index was up 0.3% m/m (expected 0.2%; last 0.3%), rising 4.7% yr/yr (last 4.3%).
• Today's Data:
  • Consumer credit increased by $8.9 billion in August (Briefing.com consensus $12.7 billion) after increasing a revised $26.7 billion (from $25.5 billion) in July.
    • The key takeaway from the report is that revolving credit decreased, suggesting the presence of increased caution among consumers.
• Commodities:
  • WTI crude: +3.7% to $77.16/bbl
  • Gold: -0.1% to $2665.90/ozt
  • Copper: -0.2% to $4.56/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0968
  • GBP/USD: -0.3% to 1.3074
  • USD/CNH: -0.4% to 7.0693
  • USD/JPY: -0.4% to 148.13
• The Day Ahead: 
  • 6:00 ET: September NFIB Small Business Optimism (prior 91.2)
  • 8:30 ET: August Trade Balance (Briefing.com consensus -$71.3 bln; prior -$78.8 bln)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results