Bond Market Update

Reversing Tuesday Gains

• U.S. Treasuries are on track for a lower start that will reverse yesterday's advance in longer tenors. Treasury futures spent the first half of the night in a sideways range, retreating to fresh lows once the focus shifted to action in Europe, where the U.K. reported a larger than expected acceleration in CPI (to 2.3% yr/yr from 1.7%) and an unexpected rise in Core CPI (to 3.3% yr/yr from 3.2%) for October. Earlier in the night, the People's Bank of China left its one-year (3.10%) and five-year (3.60%) loan prime rates unchanged, which had been expected. Risk assets are on the rise thanks to the lack of additional escalation in rhetoric from either Russia or the United States. Crude oil is building on this week's advance while the U.S. Dollar Index is up 0.3% at 106.51. The market will not receive any top-tier data today, but the U.S. Treasury will sell $16 bln in 20-yr bonds this afternoon.
• Yield Check:
  • 2-yr: +3 bps to 4.30%
  • 3-yr: +3 bps to 4.26%
  • 5-yr: +4 bps to 4.29%
  • 10-yr: +4 bps to 4.42%
  • 30-yr: +4 bps to 4.61%

• News:
  • President-elect Trump will interview Marc Rowan and Kevin Warsh for Secretary of Treasury.
  • China's customs data for October showed that shipments of antimony, a mineral used in production of defense equipment, collapsed 97%, fueling worries about a possible shortage.
  • The U.K.'s Resolution Foundation believes that official British statistics have undercounted the employed population by about a million since the pandemic.
  • European Central Bank policymaker De Guindos said that low growth in the eurozone is due to structural policy rather than monetary policy.
  • The ECB's biannual financial stability review expressed concerns about threats to financial stability from rising trade tensions.
  • Japan's October trade deficit reached JPY461.2 bln (expected deficit of JPY360.4 bln; last deficit of JPY294.1 bln) as imports grew 0.4% yr/yr (expected -0.3%; last 1.8%) and exports rose 3.1% yr/yr (expected 2.2%; last -1.7%).
  • South Korea's October PPI was down 0.1% m/m (last -0.2%) but up 1.0% yr/yr (last 1.0%).
  • Australia's October MI Leading Index was up 0.2% m/m (last 0.0%).
  • Germany's October PPI was up 0.2% m/m (expected -0.1%; last -0.5%) but down 1.1% yr/yr, as expected (last -1.4%).
  • U.K.'s October CPI was up 0.6% m/m (last 0.0%), rising 2.3% yr/yr (expected 2.2%; last 1.7%). October Core CPI was up 0.4% m/m (last 0.1%), rising 3.3% yr/yr (expected 3.1%; last 3.2%). October Input PPI was up 0.1% m/m (expected 0.5%; last -0.5%) but down 2.3% yr/yr (last -1.9%) and Output PPI was unchanged m/m (expected -0.1%; last -0.4%), falling 0.8% yr/yr (last -0.6%).
• Commodities:
  • WTI Crude: +0.9% to $70.00/bbl
  • Gold: +0.1% to $2634.60/ozt
  • Copper: +0.8% to $4.174/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0558
  • GBP/USD: -0.1% to 1.2667
  • USD/CNH: +0.2% to 7.2495
  • USD/JPY: +0.7% to 155.68
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 1.7%; 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