Bond Market Update

Monday Bounce Extended as War Rhetoric Heats Up

• U.S. Treasuries advanced on Tuesday, extending their rebound from Monday, though today's buying ran into some early resistance. The trading day started with solid gains across the curve after Russia lowered its threshold for a military response with nuclear weapons and warned that the just-approved Ukrainian use of U.S. munitions inside Russian territory will result in "an appropriate and tangible" reaction. While the remarks registered with the market, they did not spark an aggressive rush for safe-haven assets. Still, European sovereign debt advanced alongside U.S. Treasuries, while gold futures extended yesterday's rise off a two-month low. Treasuries added to their opening gains during the first 30 minutes of action, receiving some help from an underwhelming October Housing Starts (1.311 mln; Briefing.com consensus 1.340 mln) and Building Permits (1.416 mln; Briefing.com consensus 1.441 mln) report, but resistance was found shortly after yields dipped past last week's lows. Mid-morning action saw a retreat from highs, but the selling stopped near the middle of today's range, allowing for a sideways drift into the close. Crude oil edged higher after yesterday's rally while the U.S. Dollar Index slipped 0.1% to 106.21.
• Yield Check:
  • 2-yr: -1 bp to 4.27%
  • 3-yr: -2 bps to 4.23%
  • 5-yr: -3 bps to 4.25%
  • 10-yr: -4 bps to 4.38%
  • 30-yr: -4 bps to 4.57%

• News:
  • President-elect Trump nominated Howard Lutnick for Secretary of Commerce, saying he will lead the trade and tariff agenda.
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was increased to 2.6% from 2.5% in the previous estimate.
  • British farmers protested in London after the government implemented changes to the inheritance tax.
  • The leader of Japan's opposition party said that the goal is to approve the proposed economic package, that is expected to be bigger than last year's additional spending plan of JPY13 trln, by the end of the week.
  • The Reserve Bank of Australia expects that inflation will not make a sustainable return to target until 2026, according to its latest policy Minutes.
  • Multiple Chinese government and bank officials spoke in favor of expanding the market access for equities and bonds in Hong Kong.
  • Bank of England policymaker Greene warned against cutting rates too quickly due to a concern that the recently proposed budget will boost inflation.
  • European Central Bank policymaker Panetta said that a tightening bias is no longer needed in the eurozone.
  • Eurozone's October CPI was up 0.3% m/m, as expected (last -0.1%), rising 2.0% yr/yr, as expected (last 2.0%). Core CPI was up 0.2% m/m, as expected (last 0.2%), rising 2.7% yr/yr, as expected (last 2.7%). September Current Account surplus reached EUR37.0 bln (expected surplus of EUR27.0 bln; last surplus of EUR31.5 bln).
  • Spain's October Consumer Confidence fell to 79.6 from 84.8.
  • Swiss October trade surplus reached CHF8.063 bln (expected surplus of CHF4.25 bln; last surplus of CHF4.942 bln).
• Today's Data:
  • Total housing starts declined 3.1% month-over-month to a seasonally adjusted annual rate of 1.311 million units (Briefing.com consensus 1.340 million) with single-unit starts down 6.9%. Building permits were down 0.6% month-over-month to a seasonally adjusted annual rate of 1.416 million (Briefing.com consensus 1.441 million) with single-unit permits up just 0.5%.
    • The key takeaway from the report is that it included some weather impact from the hurricanes, evidenced by a 10.2% month-over-month decline in starts in the South -- the nation's largest homebuilding region -- but overall it was a generally soft report on a year-over-year basis with total starts down 4.0% and total permits down 7.7%.
• Commodities:
  • WTI crude: +0.1% to $69.25/bbl
  • Gold: +0.7% to $2631.00/ozt
  • Copper: +0.5% to $4.14/lb
• Currencies:
  • EUR/USD: UNCH at 1.0595
  • GBP/USD: UNCH at 1.2678
  • USD/CNH: +0.2% to 7.2368
  • USD/JPY: UNCH at 154.67
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.5%)
  • 10:30 ET: Weekly crude oil inventories (prior +2.09 mln)
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results