Bond Market Update

Full Belly Ahead of Thanksgiving

• U.S. Treasuries climbed on Wednesday, sending yields on most tenors back to their lowest levels of the month while the 30-yr yield finished at a level not seen since mid-October. The trading day started with solid gains and leadership from the belly after the night saw Israel's cease fire with Hezbollah come into effect and news that President-elect Trump named Jamieson Greer as the next U.S. Trade Representative. The market did not receive much in terms of noteworthy data from Asia and Europe, but the U.S. economic slate was filled to the brim ahead of tomorrow's Thanksgiving closure. The first batch of data featured an unrevised second reading of Q3 GDP (2.8%), a dip in weekly jobless claims (to 213,000 from 215,000), and below-consensus growth in Durable Orders for October (0.2%; Briefing.com consensus 0.4%). This was followed by a strong Pending Home Sales report (2.0%; Briefing.com consensus -1.5%) for October and stronger-than-expected Personal Income (0.6%; Briefing.com consensus 0.3%) and Personal Spending (0.4%; Briefing.com consensus 0.2%), coupled with an upward revision to September's Personal Spending (to 0.6% from 0.5%). The Core PCE Price Index was up an in-line 0.3%, which lifted the yr/yr growth rate to 2.8% from 2.7%. Treasuries dipped from their highs after the second batch of data but raced back to their best levels of the day after the U.S. Treasury completed this week's stellar slate of note offerings with a strong $44 bln 7-yr note auction. Late action saw some backtracking with the 2-yr note dipping below its starting mark while longer tenors remained above their opening levels into the close. Crude oil spent the day in a narrow range while the U.S. Dollar Index fell 0.9% to 106.08, deepening its pullback from levels not seen in two years. Happy Thanksgiving!
• Yield Check:
  • 2-yr: -4 bps to 4.21%
  • 3-yr: -6 bps to 4.16%
  • 5-yr: -8 bps to 4.11%
  • 10-yr: -6 bps to 4.24%
  • 30-yr: -5 bps to 4.43%

• News:
  • Kevin Hassett will lead the National Economic Council in the incoming Trump administration.
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was raised to 2.7% from 2.6% in the previous estimate.
  • The Reserve Bank of New Zealand lowered its official cash rate by 50 bps to 4.25%, as expected.
  • There was more speculation that OPEC+ will not announce an output increase on December 1.
  • European Central Bank policymaker Schnabel said she only sees limited room for additional rate cuts and that she doesn't see a recession risk in the eurozone. 
  • France's Prime Minister Barnier warned of a financial storm if the budget proposal is not approved.
  • Standard & Poor's is scheduled to announce a review of France's credit rating later this week.
  • China's October Industrial Profit was down 4.3% YTD (last -3.5%).
  • Australia's Q3 Construction Work Done was up 1.6% qtr/qtr (expected 0.4%; last 1.1%). October CPI Indicator remained at 2.1% yr/yr (expected 2.5%).
  • Germany's December GfK Consumer Climate fell to -23.3 from -18.4 (expected -18.8).
  • France's November Consumer Confidence fell to 90 from 93.
  • Swiss November ZEW Expectations fell to -12.4 from -7.7.
• Today's Data:
  • Personal income increased 0.6% month-over-month in October (Briefing.com consensus 0.3%) following an unrevised 0.3% increase in September. Personal spending increased 0.4% (Briefing.com consensus 0.2%) following an upwardly revised 0.6% increase (from 0.5%) in September. The PCE Price Index was up 0.2%, as expected, and up 2.3% year-over-year versus 2.1% in September. The core PCE Price Index, which excludes food and energy, was up 0.3%, as expected, and up 2.8% year-over-year versus 2.7% in September.
    • The key takeaway from the report is the absence of disinflation in the PCE price indexes on a year-over-year basis. That wasn't necessarily a surprise given that the monthly readings were in-line with estimates, yet it will keep the Fed inclined to take a more gradual approach to cutting the target range for the fed funds rate.
  • Initial jobless claims for the week ending November 23 decreased by 2,000 to 213,000 (Briefing.com consensus 217,000). Continuing jobless claims for the week ending November 16 increased by 9,000 to 1.907 million.
    • The key takeaway from the report is the much the same: employers are reluctant to let employees go, but for employees let go it is becoming more challenging to find a new job.
  • Durable goods orders increased 0.2% month-over-month in October (Briefing.com consensus 0.4%) following an upwardly revised 0.4% decline (from -0.8%). Excluding transportation, durable goods orders increased 0.1% month-over-month following an unrevised 0.4% increase in September.
    • The key takeaway from the report is that it showed some softness in business spending in October, evidenced by a 0.2% decline in new orders for nondefense capital goods excluding aircraft -- a proxy for business spending.
  • The second estimate for Q3 GDP was 2.8% (Briefing.com consensus 2.8%), unchanged from the advance estimate. The second estimate for the GDP Deflator was 1.9% (Briefing.com consensus 1.8%), up slightly from the advance estimate of 1.8%.
    • The key takeaway from the report is that there was a modest downward revision to personal consumption expenditures, yet that did not alter the fact that personal spending was quite healthy in the third quarter.
  • The Adv. International Trade in Goods deficit narrowed to $99.1 billion in October versus a downwardly revised $108.7 billion (from $108.2 billion) in September. Advance Retail Inventories increased 0.1% following a downwardly revised 0.6% increase (from 0.8%) in September and Advance Wholesale Inventories jumped 0.2% in October following a downwardly revised 0.2% decline (from -0.1%) in September.
    • The key takeaway from the report is that there was a notable month-over-month decline for both exports of goods (-$5.6 billion) and imports of goods (-$15.2 billion) that was likely adversely impacted by the East Coast port strike.
  • The Chicago PMI hit 40.2 in November (Briefing.com consensus 45.0), down from 41.6 in October.
  • Pending Home Sales rose 2.0% in October (Briefing.com consensus -1.5%) after increasing a revised 7.5% (from 7.4%) in September.
  • The weekly MBA Mortgage Index was up 6.3% to follow last week's 1.7% increase. The Purchase Index rose 12.4% while the Refinance Index fell 2.6%.
  • Weekly crude oil inventories decreased by 1.84 mln barrels after increasing by 545,000 barrels a week ago.
  • Weekly natural gas inventories decreased by 2 bcf after decreasing by 3 bcf a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.183% (4.252%).
    • Bid-to-cover: 2.71 (2.53).
    • Indirect bid: 64.1% (69.1%). 
    • Direct bid: 25.9% (17.2%).
• Commodities:
  • WTI crude: -0.1% to $68.78/bbl 
  • Gold: +0.7% to $2639.90/ozt
  • Copper: +0.7% to $4.15/lb
• Currencies:
  • EUR/USD: +0.7% to 1.0562
  • GBP/USD: +0.8% to 1.2672
  • USD/CNH: -0.1% to 7.2458
  • USD/JPY: -1.3% to 151.12
• The Day Ahead:
  • Bond and equity markets closed for Thanksgiving
• Friday:
  • 13:00 ET: NYSE early close 
  • 14:00 ET: Bond market early close