Bond Market Update

Short End Resists Intraday Pressure

• U.S. Treasuries followed their four consecutive losses with a mixed showing on Tuesday, as the 5-yr note, and shorter tenor snapped their recent skid while 10s and 30s finished with slight losses. Shorter tenors outperformed from the start after a night that featured significant volatility in Asian equities, as China's Shanghai Composite opened with a 10.0% gain that was trimmed to 4.6% by the close after China's National Development and Reform Commission provided an underwhelming outline of planned stimulus measures. Despite the early outperformance in shorter tenors, Treasuries had a difficult time staging a meaningful bounce. The entire complex reached lows about 90 minutes after the open, followed by a slow rise off lows that found resistance once the 10-yr note approached its unchanged level around noon. The U.S. Treasury kicked off this week's note and bond auction slate with a weak sale of 3-yr notes, but the poor reception did not invite a slide to fresh lows. Instead, Treasuries nestled into a sideways afternoon range, finishing near their starting levels. Crude oil reversed sharply from its best level since late August while the U.S. Dollar Index remained little changed at 102.55, holding at its best level since mid-August.
• Yield Check:
  • 2-yr: -2 bps to 3.98%
  • 3-yr: -1 bp to 3.89%
  • 5-yr: -1 bp to 3.86%
  • 10-yr: +1 bp to 4.03%
  • 30-yr: +2 bps to 4.32%

• News:
  • The Congressional Budget Office estimated that the budget deficit reached $1.8 trln in FY24.
  • European Central Bank policymaker Kazaks said that a rate cut is likely to be made in October while policymaker Vasle cautioned that the market should not assume that another cut will be made in December. 
  • The Reserve Bank of Australia did not consider a rate hike in September, according to the latest policy minutes.
  • Japan's August Household Spending was up 2.0% m/m (expected 0.5%; last -1.7%) but down 1.9% yr/yr (expected -2.6%; last 0.1%). August Overall wage income was up 3.0% yr/yr, as expected (last 3.4%) and Overtime Pay was up 2.6% yr/yr (expected -2.5%; last -0.2%). August Current Account surplus reached JPY3.02 trln (expected surplus of JPY2.43 trln; last surplus of JPY2.80 trln). September Economy Watchers Current Index hit 47.8 (expected 49.3; last 49.0).
  • South Korea's August Current Account surplus reached $6.60 bln (last surplus of $8.97 bln).
  • Australia's October Westpac Consumer Sentiment was up 6.2% (last -0.5%) and ANZ Job Advertisements were up 1.6% m/m (last -1.8%). September NAB Business Survey rose to 7 from 3 and Business Confidence rose to -2 from -5.
  • Germany's August Industrial Production was up 2.9% m/m (expected 0.8%; last -2.9%) but down 2.5% yr/yr (last -5.8%).
  • France's August trade deficit reached EUR7.4 bln (expected deficit of EUR5.5 bln; last deficit of EUR6.0 bln).
• Today's Data: 
  • The trade deficit narrowed to $70.4 billion in August (Briefing.com consensus -$71.3 billion) from a downwardly revised $78.9 billion (from -$78.8 billion) in July. The improvement was the result of exports being $5.3 billion more than July exports and imports being $3.2 billion less than July imports.
    • The key takeaway from the report is that the net exports component for August will be a positive input for Q3 GDP forecasts.
  • The NFIB Small Business Optimism Index rose to 91.5 in September from 91.2 in August.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.878% (4.327%).
    • Bid-to-cover: 2.45 (2.58).
    • Indirect bid: 56.9% (64.2%). 
    • Direct bid: 24.0% (18.5%).
• Commodities:
  • WTI crude: -4.5% to $73.70/bbl
  • Gold: -1.1% to $2635.40/ozt
  • Copper: -2.2% to $4.46/lb
• Currencies:
  • EUR/USD: UNCH at 1.0971
  • GBP/USD: +0.1% to 1.3089
  • USD/CNH: +0.1% to 7.0724
  • USD/JPY: +0.1% to 148.37
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -1.3%)
  • 10:00 ET: August Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.2%)
  • 10:30 ET: Weekly crude oil inventories (prior +3.89 mln)
  • 14:00 ET: September FOMC Minutes
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results