Bond Market Update

Morning Rally Rebuffed

• U.S. Treasuries ended Thursday on a lower note after a morning bounce attempt ran into resistance near yesterday's intraday highs. Treasuries opened the day near their flat lines, staging a modest rally alongside a poor open in equities. Geopolitical fears remained in the conversation after Ukraine said that it was hit by a Russian ICBM after the recent use of U.S. and British missiles against Russia but reports before the bond market's open disputed the type of a missile used by Russia. The morning advance briefly pressured yields past their lows from yesterday, but selling pressure appeared around 10:00 ET, keeping the market on the defensive into the close with yields on longer tenors returning to their highs from Wednesday. The reversal followed the release of a stronger-than-expected Existing Home Sales report for October (3.96 mln; Briefing.com consensus 3.90 mln), which followed another decrease in weekly jobless claims (to 213,000 form 219,000), and a disappointing Philadelphia Fed Survey (-5.5; Briefing.com consensus 7.0). Crude oil pushed toward its 50-day moving average (70.73) while the U.S. Dollar Index rose 0.3% to 106.97.
• Yield Check:
  • 2-yr: +4 bps to 4.35%
  • 3-yr: +4 bps to 4.30%
  • 5-yr: +3 bps to 4.31%
  • 10-yr: +3 bps to 4.43%
  • 30-yr: +3 bps to 4.62%

• News:
  • Rep. Gaetz has withdrawn from consideration for Attorney General.
  • Chicago Fed President Goolsbee (FOMC voter in 2025) said that he expects rates to end up a fair bit lower over the next year or so, but acknowledged that the process will take time.
  • SEC Chair Gensler will resign on January 20.
  • There was speculation that OPEC+ will agree to maintain output at a reduced level when it meets on December 1.
  • China Securities Journal expects domestic banks to start cutting lending rates next year.
  • The founder of India's Adani Enterprises was hit with bribery charges from the U.S. Department of Justice, leading to a 22.6% dive in the India-listed stock. The company cancelled a planned sale of dollar-denominated bonds, and the news also weighed on Australian investment manager GQG Partners.
  • European Central Bank policymaker Villeroy de Galhau said that inflation could make a sustainable return to the 2.0% target early next year and that restrictive policy should be eased more.
  • ECB policymaker Stournaras said that a 25-basis point cut should be made in December.
  • Germany's Bundesbank released its latest financial stability report, warning of a significant number of corporate bankruptcies expected next year.
  • Hong Kong's October CPI was up 0.2% m/m (last 0.1%), rising 1.4% yr/yr (last 2.2%).
  • New Zealand's October Credit Card Spending was up 0.3% yr/yr (last -3.1%).
  • U.K.'s October Public Sector Net Borrowing reached GBP17.35 bln (expected GBP14.10 bln; last GBP16.14 bln). November CBI Industrial Trends Orders rose to -19 from -27 (expected -25).
  • France's November Business Survey rose to 97 from 93 (expected 95).
• Today's Data:
  • Initial jobless claims for the week ending November 16 decreased by 6,000 to 213,000 (Briefing.com consensus 221,000). Continuing jobless claims for the week ending November 9 increased by 36,000 to 1.908 million. That is the first reading above 1.900 million since November 2021.
    • The key takeaway from the report is that the rising trend for continuing jobless claims connotes a softening labor market whereby it has become more challenging to find a new job after being laid off.
  • The Philadelphia Fed Index checked in at -5.5 for November (Briefing.com consensus 7.0) following a 10.3 reading for October. The dividing line between expansion and contraction is 0.0, so the November reading suggests manufacturing activity in the Philadelphia Fed region contracted in November.
  • Existing home sales increased 3.4% month-over-month in October to a seasonally adjusted annual rate of 3.96 million (Briefing.com consensus 3.90 million) from a downwardly revised 3.83 million (from 3.84 million) in September. Sales were up 2.9% from the same period a year ago, which was the first year-over-year increase since July 2021.
    • The key takeaway from the report is that more inventory is becoming available, but with the ongoing increase in the median home price and mortgage rates remaining elevated, affordability constraints will persist, capping total sales potential.
  • Conference Board's Leading Economic Index was down 0.4% in October (Briefing.com consensus -0.3%) after a revised 0.3% decrease (from -0.5%) in September.
  • Weekly natural gas inventories decreased by 3 bcf after increasing by 42 bcf a week ago.
  • The U.S. Treasury sold $17 bln in 10-yr TIPS at a high yield of 2.071% with a bid-to-cover ratio of 2.35x.
• Commodities:
  • WTI crude: +1.9% to $70.10/bbl
  • Gold: +0.9% to $2675.00/ozt
  • Copper: -0.7% to $4.12/lb
• Currencies:
  • EUR/USD: -0.6% to 1.0485
  • GBP/USD: -0.4% to 1.2602
  • USD/CNH: +0.1% to 7.2546
  • USD/JPY: -0.6% to 154.47
• The Day Ahead:
  • 9:45 ET: Flash November S&P Global U.S. Manufacturing PMI (prior 48.5) and flash November S&P Global U.S. Services PMI (prior 55.0)
  • 10:00 ET: Final November University of Michigan Consumer Sentiment (Briefing.com consensus 73.0; prior 73.0)