Bond Market Update

Hold the Rate Cut (Maybe)

• U.S. Treasuries saw some weakness overnight in the futures trade that pushed yields higher; however, there was a recovery bid early in the cash session that appeared to be driven by some geopolitical angst as reports indicated Ukraine had fired UK-made missiles into Russia. The safe-haven bid didn't persist. Buying interest subsided after Fed Governor Bowman (FOMC voter) indicated that she would like to proceed cautiously in bringing down the policy rate given that inflation progress seems to have stalled in recent months. Strikingly, the prospect of a 25-basis points cut at the December FOMC meeting is close to a coin toss now, standing at 52.0%, versus 58.9% yesterday, according to the CME FedWatch Tool. The results of a weak $16 billion 20-yr bond auction at 1:00 p.m. ET, which saw the high-yield of 4.680% tail the when-issued yield by three basis points, also detracted from buying interest. The U.S. Dollar Index was up 0.5% to 106.70. 
• Yield Check:
  • 2-yr: +3 bps to 4.30%
  • 3-yr: +3 bps to 4.26%
  • 5-yr: +2 bps to 4.27%
  • 10-yr: +4 bps to 4.41%
  • 30-yr: +3 bps to 4.59%

• News:
  • President-elect Trump will interview Marc Rowan and Kevin Warsh for Secretary of Treasury.
  • President-elect Trump is considering creating a new White House office that will be in charge of cryptocurrency policy, according to Bloomberg
  • Fed Governor Cook says, "...if inflation progress slows and the labor market remains solid, I could see a scenario where we pause along the downward path. Alternatively, should the labor market weaken in a substantial way, it could be appropriate to ease policy more quickly."
  • Fed Governor Bowman says inflation progress seems to have stalled in recent months and "I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point" (i.e., neutral policy stance)
  • 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%).
• Today's auction:
  • $16 bln 20-yr bond
    • High yield: 4.680% (When-Issued: 4.650%)
    • Bid-to-cover: 2.34 (vs prior 12-auction avg. of 2.60)
    • Indirect bid: 69.5% (vs prior 12-auction avg. of 70.0%)
    • Direct bid: 7.9% (vs prior 12-auction avg. of 17.8%)
• Commodities:
  • WTI Crude: -0.7% to $68.76/bbl
  • Gold: +0.8% to $2651.90/ozt
  • Copper: +0.2% to $4.15/lb
• Currencies:
  • EUR/USD: -0.5% to 1.0539
  • GBP/USD: -0.3% to 1.2641
  • USD/CNH: +0.2% to 7.252
  • USD/JPY: +0.5% to 155.39
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual +1.7%; prior +0.5%)
  • 10:30 ET: Weekly crude oil inventories (actual +0.545 mln; prior +2.09 mln)
• The Day Ahead:
  • 08:30 ET: Weekly Initial Jobless Claims (Briefing.com consensus 221K; prior 217K) and Continuing Jobless Claims (prior 1873K)
  • 08:30 ET: November Philadelphia Fed Index (Briefing.com consensus 7.0; prior 10.3)
  • 10:00 ET: October Existing Home Sales (Briefing.com consensus 3.90M; prior 3.84M)
  • 10:00 ET: October Leading Indicators (Briefing.com consensus -0.3%; prior -0.5%)
  • 10:30 ET: Weekly EIA Natural Gas Inventories (prior +42 bcf)
  • 13:00 ET: $17 bln 10-yr TIPS auction