Bond Market Update

Longer Tenors Give Back Post-CPI Gains

• U.S. Treasuries ended Wednesday on a mixed note with 10s and 30s failing to defend their post-CPI gains while shorter tenors withstood the intraday reversal, hanging onto some of their gains. The trading day started on a largely flat note with some relative strength in longer tenors before the entire complex rallied in immediate reaction to the CPI report for October. The report showed in-line headline (0.2%) and core (0.3%) readings, sparking a brief rally that ran out of steam once longer tenors approached their opening levels from Tuesday. Treasuries notched highs before the end of the opening hour of action with longer tenors leading an intraday reversal. That reversal sent the long bond into the red two hours after the start while the 10-yr note followed suit, suggesting the market remains on the lookout for a stronger combination of growth and inflation down the road. Shorter tenors also backed down from their best levels, but they remained in positive territory as the market's expectations for a 25-bps December rate cut solidified. The day featured some news from Washington, as Senate Republicans elected John Thune from South Dakota as the next majority leader. In addition, the Republicans are now projected to maintain control of the House of Representatives, which was expected. Crude oil recorded a slim gain after bouncing just above its September low while the U.S. Dollar Index rose 0.4% to 106.42, touching its highest level in more than a year.
• Yield Check:
  • 2-yr: -4 bps to 4.28%
  • 3-yr: -5 bps to 4.26%
  • 5-yr: -1 bp to 4.30%
  • 10-yr: +2 bps to 4.45%
  • 30-yr: +6 bps to 4.64%

• News:
  • The French parliament rejected a budget bill for 2025, sending it back to the Senate for revisions.
  • China Securities Times reported that the details of the tax cut on home purchases will be released by the end of the year.
  • China will extend the Spring Festival and May Day holidays by one day apiece.
  • Japan's October PPI was up 0.2% m/m (expected 0.0%; last 0.3%), rising 3.4% yr/yr (expected 2.9%; last 3.1%).
  • South Korea's October Import Price Index was down 2.5% yr/yr (last -3.7%) and Export Price Index was up 2.0% yr/yr (last 1.0%). October Unemployment Rate rose to 2.7% from 2.5%.
  • Australia's Q3 Wage Price Index was up 0.8% qtr/qtr (expected 0.9%; last 0.8%), rising 3.5% yr/yr (expected 3.6%; last 4.1%).
  • New Zealand's September Visitor Arrivals rose 1.1% m/m (last -2.1%).
  • France's Q3 Unemployment Rate rose to 7.4% from 7.3%, as expected. Bank of France Governor Villeroy de Galhau expects the rate to continue growing to 8.0% before returning to 7.0%.
• Today's Data:
  • Total CPI increased 0.2% month-over-month in October (Briefing.com consensus 0.2%) while core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus 0.3%). Those increases left total CPI up 2.6% year-over-year, versus 2.4% in September, and core CPI up 3.3%, unchanged from September.
    • The key takeaway from the report -- and perhaps calming influence -- is the understanding that the shelter index accounted for more than 65% of the total 12-month increase in core CPI, so the market is watering down the headline inflation print as not being as comprehensively inflationary as it seems. The unadjusted change in the all items less shelter index was just 1.3% year-over-year.
  • The Treasury Budget for October showed a deficit of $257.4 billion compared to a deficit of $66.6 billion in the same period a year ago. The October deficit resulted from outlays ($584.2 billion) exceeding receipts ($326.8 billion). The Treasury Budget data is not seasonally adjusted so the October deficit cannot be compared to the September surplus.
    • The key takeaway from the report is that the net interest outlay is running close to $1 trillion on an annualized basis.
  • The weekly MBA Mortgage Index was up 0.5% to follow last week's 10.8% decrease. The Purchase Index rose 1.9% while the Refinance Index was down 1.5%.
• Commodities:
  • WTI crude: +0.3% to $68.41/bbl
  • Gold: -0.7% to $2587.10/ozt
  • Copper: -1.5% to $4.08/lb
• Currencies:
  • EUR/USD: -0.5% to 1.0565
  • GBP/USD: -0.3% to 1.2704
  • USD/CNH: +0.1% to 7.2443
  • USD/JPY: +0.6% to 155.54
• The Day Ahead:
  • 8:30 ET: October PPI (Briefing.com consensus 0.2%; prior 0.0%) and Core PPI (Briefing.com consensus 0.3%; prior 0.2%), Weekly Initial Claims (Briefing.com consensus 220,000; prior 221,000), and Continuing Claims (prior 1.892 mln)
  • 10:30 ET: weekly natural gas inventories (prior +69 bcf)
  • 11:00 ET: Weekly crude oil inventories (prior +2.15 mln)