Bond Market Update

Pressure Returns Ahead of October CPI

• U.S. Treasuries returned from Monday's holiday closure with a sharp slide that lifted yields on 10s and shorter tenors above last week's closing highs ahead of tomorrow's release of October CPI (Briefing.com consensus 0.2%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.3%). Treasuries recorded roughly half of their losses at the open after facing pressure in the futures market on Monday. The first 90 minutes of action featured a bounce attempt that briefly pressured yields on most tenors below their opening levels, but the market found renewed pressure in short order, sliding into the afternoon. The selling lifted yields to highs in the early afternoon, followed by a sideways drift into the close. The New York Fed released its Survey of Consumer Expectations for October in the late morning, but the report was unable to stop the selling even though it showed that year-ahead inflation expectations dipped to 2.9% from 3.0% while the three-year outlook decreased to 2.5% from 2.7%, and the five-year expectations dipped to 2.8% from 2.9%. Later in the afternoon, the Fed released its Senior Loan Officer Opinion Survey for October. The survey showed no big change in lending standards for commercial and industrial loans to large and middle-market firms while standards for loans to small firms tightened. Standards for all commercial real estate loans tightened while demand weakened. Standards for loans to households were little changed while demand decreased. Banks also reported lower willingness to open credit card accounts for near-prime and subprime customers compared to the beginning of the year. Overall borrower spending is expected to increase in the coming months. Crude oil avoided its third consecutive loss, but gave back the bulk its gain by the pit close, while the U.S. Dollar Index rose 0.4% to 106.00, briefly rising past its June high (106.13).
• Yield Check:
  • 2-yr: +9 bps to 4.34%
  • 3-yr: +11 bps to 4.31%
  • 5-yr: +12 bps to 4.31%
  • 10-yr: +12 bps to 4.43%
  • 30-yr: +10 bps to 4.58%

• News:
  • President-elect Trump is expected to nominate Florida Senator Rubio as Secretary of State.
  • Richmond Fed President (FOMC voter) Barkin lauded the resilience in the U.S. economy.
  • Chinese officials will reduce taxes on home purchases to support the property sector.
  • Japan's three largest banks are on track to reach record net income for the year.
  • Japan's Prime Minister Ishiba said that more than JPY10 trln will be spent to support chip and AI companies by fiscal 2030.
  • Germany will hold a federal election on February 23.
  • Germany's metal workers union agreed to a one-time bonus, a 2.0% pay increase in April 2025, followed by a 3.1% increase in 2026.
  • Japan's October M2 Money Stock increased 1.2% yr/yr (expected 1.5%; last 1.2%) and October Machine Tool Orders were up 9.3% yr/yr (last -6.5%).
  • India's October CPI was up 6.21% yr/yr (expected 5.81%; last 5.49%). September Industrial Production rose 3.1% yr/yr (expected 2.5%; last -0.1%). September Manufacturing Output grew 3.9% m/m (last 1.0%).
  • Australia's November Westpac Consumer Sentiment rose 5.3% (last 6.2%). October Business Survey remained at 7 and Business Confidence rose to 5 from -2.
  • New Zealand's October Electronic Card Retail Sales were up 0.6% m/m (last 0.1%), but down 1.1% yr/yr (last -5.6%).
  • Eurozone's November ZEW Economic Sentiment fell to 12.5 from 20.1 (expected 13.2).
  • Germany's October CPI was up 0.4% m/m, as expected (last 0.0%), rising 2.0% yr/yr (expected 2.0%; last 1.6%). November ZEW Economic Sentiment fell to 7.4 from 13.1 (expected 13.2) and ZEW Current Conditions fell to -91.4 from -86.9 (expected -86.0).
  • U.K.'s September Average Earnings Index + Bonus rose 4.3% yr/yr (expected 3.9%; last 3.9%). October Claimant Count reached 26,700 (expected 30,500; last 10,100). September Unemployment Rate rose to 4.3% from 4.0% (expected 4.1%).
• Today's Data:
  • The NFIB Small Business Optimism Index rose to 93.7 in October from 91.5 in September.
• Commodities:
  • WTI crude: +0.2% to $68.23/bbl
  • Gold: -0.5% to $2605.50/ozt
  • Copper: -2.1% to $4.14/lb
• Currencies:
  • EUR/USD: -0.4% to 1.0612
  • GBP/USD: -1.0% to 1.2738
  • USD/CNH: +0.3% to 7.2450
  • USD/JPY: +0.7% to 154.77
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -10.8%)
  • 8:30 ET: October CPI (Briefing.com consensus 0.2%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.3%)
  • 10:30 ET: Weekly crude oil inventories (prior +2.15 mln)
  • 14:00 ET: October Treasury Budget (prior $64.0 bln)