Bond Market Update

Longer Tenors Pad November Gains

• U.S. Treasuries ended the week on a firmly higher note, making for an impressive finish to a month that saw some early weakness as the market responded to the outcome of the presidential election. Treasuries followed Wednesday's advance with a firmly higher start after a night that was busy on the international data front, but quiet at home. Rate expectations were at the forefront of the overnight conversation with a growing belief that the Bank of Japan will announce another rate hike in December while the European Central Bank is seen as likely to announce a rate cut next month. Treasuries built on their opening gains in morning trade, followed by an afternoon push to fresh highs. The day's action unfolded in slow fashion, which was not a surprise given this week's holiday schedule. Treasuries finished the abbreviated session on their highs with the 30-yr yield falling past its 200-day (4.409%) and 50-day (4.402%) moving averages while the 10-yr yield stopped just above the 50-day moving average of its own (4.151%). With the gains recorded over the past two days, most tenors finished November with solid gains after overcoming pressure that was seen during the first half of the month. The 10-yr yield finished the month with a 10-basis point decrease, but it was down 33 basis points from its peak on November 15. This month's outperformance in longer tenors compressed the 2s10s spread by ten basis points to just two basis points. Crude oil failed to sustain an early gain while the U.S. Dollar Index fell 0.3% to 105.80, narrowing its November gain to 1.8%.
• Yield Check:
  • 2-yr: -5 bps to 4.16% (-21 bps this week; UNCH in November)
  • 3-yr: -6 bps to 4.10% (-21 bps this week; -3 bps in November)
  • 5-yr: -6 bps to 4.06% (-24 bps this week; -10 bps in November)
  • 10-yr: -6 bps to 4.18% (-23 bps this week; -10 bps in November)
  • 30-yr: -6 bps to 4.37% (-23 bps this week; -10 bps in November)

• News:
  • OPEC+ postponed its Sunday meeting until Thursday.
  • Reserve Bank of Australia Governor Bullock said that there is a low likelihood of rate cuts in the near future.
  • France will continue its budget debate next week and there is a growing likelihood that Prime Minister Barnier will face a confidence vote.
  • Standard & Poor's will release its review of France's sovereign rating later today.
  • European Central Bank policymaker Stournaras said that tougher trade restrictions from the U.S. could invite sharper rate cuts.
  • Japan's October Industrial Production was up 3.0% m/m (expected 3.8%; last 1.6%) and October Retail Sales rose 1.6% yr/yr (expected 2.1%; last 0.7%). November Tokyo CPI was up 2.6% yr/yr (last 1.8%) and Tokyo Core CPI was up 2.2% yr/yr (expected 2.0%; last 1.8%). October Housing Starts fell 2.9% yr/yr (expected -2.0%; last -0.6%) and November Household Confidence rose to 36.4 from 36.2, as expected.
  • South Korea's October Industrial Production was unchanged m/m (expected 0.6%; last -0.1%), rising 6.3% yr/yr (expected 2.4%; last -1.4%). October Retail Sales were down 0.4% m/m (last -0.5%).
  • Hong Kong's October Retail Sales were down 2.9% yr/yr (last -6.9%).
  • Australia's October Private Sector Credit was up 0.6% m/m (expected 0.5%; last 0.5%) and Housing Credit was up 0.5% m/m (last 0.5%).
  • Eurozone's November CPI was down 0.3% m/m (last 0.3%) but up 2.3% yr/yr, as expected (last 2.0%). November Core CPI was down 0.6% m/m (last 0.2%) but up 2.7% yr/yr (expected 2.8%; last 2.7%). 
  • Germany's October Retail Sales fell 1.5% m/m (expected -0.5%; last 1.6%), increasing 1.0% yr/yr (expected 3.2%; last 0.9%). October Import Price Index was up 0.6% m/m (expected 0.2%; last -0.4%) and Export Price Index was down 0.8% yr/yr (expected -1.2%; last -1.3%). November Unemployment increased by 7,000 (expected 20,000; last 27,000) and unemployment rate remained at 6.1%, as expected. 
  • U.K.'s October Mortgage Lending reached GBP3.44 bln (expected GBP2.85 bln; last GBP2.57 bln) and Net Lending to Individuals reached GBP4.53 bln (expected GBP4.10 bln; last GBP3.80 bln).
  • France's September Consumer Spending was down 0.4% m/m (expected -0.1%; last 0.1%). November CPI was up 0.1% m/m (expected 0.0%; last 0.2%), rising 1.3% yr/yr (expected 1.5%; last 1.2%). October PPI was up 0.9% m/m (expected 0.0%; last -0.1%) but down 5.7% yr/yr (last -6.9%). Q3 GDP expanded 0.4% qtr/qtr, as expected (last 0.2%), growing 1.2% yr/yr (expected 1.3%; last 1.0%). Q3 Nonfarm Payrolls increased 0.2% qtr/qtr (expected -0.1%; last 0.0%).
  • Italy's September Industrial Sales were down 0.3% m/m (last -0.3%), falling -5.7% yr/yr (last -4.9%). November CPI was unchanged m/m (expected -0.2%; last 0.0%), rising 1.4% yr/yr, as expected (last 0.9%).
  • Spain's October Retail Sales rose 3.5% yr/yr (last 4.2%). September Current Account surplus reached EUR4.10 bln (last surplus of EUR5.63 bln).
  • Swiss Q3 GDP expanded 0.4% qtr/qtr, as expected (last 0.6%), growing 2.0% yr/yr (expected 1.8%; last 1.5%). November KOF Leading Indicators rose to 101.8 from 99.7 (expected 100.1).
• Commodities:
  • WTI crude: -0.4% to $68.45/bbl
  • Gold: +1.5% to $2679.10/ozt
  • Copper: -0.2% to $4.14/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0572
  • GBP/USD: +0.3% to 1.2724
  • USD/CNH: +0.1% to 7.2531
  • USD/JPY: -1.2% to 149.66
• The Week Ahead: 
  • Monday: October Construction Spending (prior 0.1%) and November ISM Manufacturing Index (prior 46.5%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 6.3%) at 7:00 ET; November ADP Employment Change (prior 233,000) at 8:15 ET; November ISM Non-Manufacturing Index (prior 56.0%) at 10:00 ET; and weekly crude oil inventories (prior -1.84 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (prior 213,000), Continuing Claims (prior 1.907 mln), and October Trade Balance (prior -$84.4 bln) at 8:30 ET; October Factory Orders (prior -0.5%) at 10:00 ET; and weekly natural gas inventories (prior -2 bcf) at 10:30 ET
  • Friday: November Nonfarm Payrolls (prior 12,000), Nonfarm Private Payrolls (prior -28,000), Average Hourly Earnings (prior 0.4%), Unemployment Rate (prior 4.1%), and Average Workweek (prior 34.3) at 8:30 ET; preliminary December University of Michigan Consumer Sentiment (prior 71.8) at 10:00 ET: and October Consumer Credit (prior $6.0 bln) at 15:00 ET