Bond Market Update

Short End Remains Pressured

• U.S. Treasuries ended the week on a mixed note as another batch of solid domestic data combined with weak overseas data kept the short end under pressure while longer tenors held onto a portion of their starting gains. The trading day started with gains across the curve after a night that saw the release of weak flash November PMI readings from major economies and especially Europe. Manufacturing PMI readings from Japan (49.0) and Australia (49.4) remained in slight contraction while Japan's Services PMI (50.2) returned to expansion and Australia's reading (49.6) fell into contraction. Reports from Europe looked much worse, showing a deepening contraction in manufacturing in the eurozone (45.2; prior 46.0) and the U.K. (48.6; prior 49.9) and an unexpected contraction in eurozone's Services PMI (49.2; expected 51.6). Treasuries began slipping from their highs shortly after the open, accelerating their pullback after the U.S. S&P Global Services PMI for November (57.0; prior 55.0) showed an acceleration in activity in the largest sector of the U.S. economy at a pace not seen since early 2022. Manufacturing PMI (48.8; prior 48.5) remained in contraction, but at a slower pace than what was seen in October. A bit later, the final reading of the University of Michigan's Consumer Sentiment for November showed a dip to 71.8 from 73.0 in the preliminary reading, but it was still above October's final reading of 70.5. The 5-yr note and longer tenors found support near yesterday's closing levels, inching up off their lows into the afternoon while the 2-yr note finished at its lowest level of the day. This week's underperformance in shorter tenors exerted notable pressure on the 2s10s spread, compressing it by nine basis points to just four basis points. Crude oil climbed above its 50-day moving average (70.76) while the U.S. Dollar Index rose 0.5% to a two-year high of 107.55, gaining 0.8% for the week.
• Yield Check:
  • 2-yr: +2 bps to 4.37% (+7 bps this week)
  • 3-yr: +1 bp to 4.31% (+4 bps this week)
  • 5-yr: -1 bp to 4.30% (UNCH this week)
  • 10-yr: -2 bps to 4.41% (-2 bps this week)
  • 30-yr: -3 bps to 4.60% (UNCH this week)

• News:
  • The Wall Street Journal reported that Kevin Warsh has a high chance of becoming Secretary of the Treasury and could be nominated to succeed Fed Chairman Powell in 2026.
  • President-elect Trump nominated Pam Bondi for Attorney General.
  • President-elect Trump is expected to nominate Kelly Loeffler as Secretary of Agriculture, according to CNN.
  • China's 10-yr note auction saw strong demand, pricing just above record low yield.
  • Japan's Prime Minister Ishiba said that the stimulus package will total JPY39 trln with JPY13.9 trln coming from the general account.
  • Germany's SPD is expected to nominate Chancellor Scholz for re-election on Monday with a snap election planned for February.
  • Japan's October CPI was up 0.6% m/m (last -0.3%), rising 2.3% yr/yr (last 2.5%). October Core CPI was up 2.3% yr/yr (expected 2.2%; last 2.4%). Flash November Manufacturing PMI hit 49.0 (expected 49.5; last 49.2) and flash Services PMI hit 50.2 (last 49.7).
  • India's flash November Manufacturing PMI hit 57.3 (last 57.5) and flash Services PMI hit 59.2 (last 58.5).
  • Singapore's Q3 GDP expanded 5.4% yr/yr (last 3.0%).
  • Australia's flash November Manufacturing PMI hit 49.4 (last 47.3) and flash Services PMI hit 49.6 (last 51.0).
  • Eurozone's flash November Manufacturing PMI hit 45.2 (expected 46.0; last 46.0) and flash Services PMI hit 49.2 (expected 51.6; last 51.6)
  • Germany's Q3 GDP expanded 0.1% qtr/qtr (expected 0.2%; last 0.2%) but was down 0.3% yr/yr (expected -0.2%; last -0.2%). Flash November Manufacturing PMI hit 43.2 (expected 43.1; last 43.0) and flash Services PMI hit 49.4 (expected 51.8; last 51.6).
  • U.K.'s October Retail Sales fell 0.7% m/m (expected -0.3%; last 0.1%) but were up 2.4% yr/yr (expected 3.4%; last 3.2%). October Core Retail Sales fell 0.9% m/m (expected -0.3%; last 0.1%) but were up 2.0% yr/yr (expected 3.3%; last 3.2%). Flash November Manufacturing PMI hit 48.6 (expected 50.1; last 49.9) and flash Services PMI hit 50.0 (expected 52.3; last 52.3).
• Today's Data:
  • S&P Global Services PMI hit 57.0 in the flash reading for November, up from 55.0 in October.
  • S&P Global Manufacturing PMI hit 48.8 in the flash reading for November, up from 48.5 in October.
  • The final University of Michigan Index of Consumer Sentiment for November dipped to 71.8 (Briefing.com consensus 73.0) from the preliminary reading of 73.0. The final reading for October was 70.5. In the same period a year ago, the index stood at 61.3.
    • The key takeaway from the report is that consumer sentiment held fairly steady in the wake of the election, albeit with offsetting economic expectations that were aligned with partisan positions.
• Commodities:
  • WTI crude: +1.7% to $71.28/bbl
  • Gold: +1.4% to $2713.10/ozt
  • Copper: -0.7% to $4.09/lb
• Currencies:
  • EUR/USD: -0.6% to 1.0410
  • GBP/USD: -0.5% to 1.2525
  • USD/CNH: +0.1% to 7.2591
  • USD/JPY: +0.2% to 154.80
• The Week Ahead:
  • Monday: $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Tuesday: September FHFA Housing Price Index (prior 0.3%) and September S&P Case-Shiller Home Price Index (prior 5.2%) at 9:00 ET; November Consumer Confidence (prior 108.7) and October New Home Sales (prior 738,000) at 10:00 ET; $70 bln 5-yr Treasury note auction results at 13:00 ET; and November FOMC Minutes at 14:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 1.7%) at 7:00 ET; October Personal Income (prior 0.3%), Personal Spending (prior 0.5%), PCE Prices (prior 0.2%), Core PCE Prices (prior 0.3%), Q3 GDP -- second estimate (prior 2.8%), Q3 GDP Deflator -- second estimate (prior 1.8%), October Durable Orders (prior -0.8%), Durable Orders ex-transportation (prior 0.4%), October advance goods trade balance (prior -$108.2 bln), advance Retail Inventories (prior 0.8%), Advance Wholesale Inventories (prior -0.1%), weekly Initial Claims (prior 213,000), and Continuing Claims (prior 1.908 mln) at 8:30 ET; October Pending Home Sales (prior 7.4%) at 10:00 ET: weekly crude oil inventories (prior +0.545 mln) at 10:30 ET; weekly natural gas inventories (prior -3 bcf) at 12:00 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Thursday: Bond and equity markets closed for Thanksgiving
  • Friday: November Chicago PMI (prior 41.6) at 9:45 ET; NYSE close at 13:00 ET; Bond market close at 14:00 ET