Bond Market Update

Friday Losses Narrowed

• U.S. Treasuries began the week on a solid note, recovering the bulk of their losses from Friday's slide that left yields at their highest levels since the summer. Treasuries rallied out of the gate after a night that saw the release of final October Manufacturing PMI readings from major European economies, which remained in contraction, though at a slower pace than what was reflected in the flash readings. The higher start was followed by some more buying in morning trade with the market reaching highs shortly after the release of a Factory Orders report for September, which showed a larger-than-expected decrease (-0.5%; Briefing.com consensus -0.4%) combined with a downward revision to the reading for August (to -0.8% from -0.2%). The rest of the morning saw a steady pullback from highs with the market extending to fresh lows after the U.S. Treasury kicked off this week's note and bond auction slate with a mediocre $58 bln 3-yr Treasury note auction that drew a 0.9 bps tail, but also saw an above-average bid-to-cover ratio (2.60x vs 2.57x average) and strong indirect takedown (70.6% vs 64.3% average). Even with the post-auction dip, the market remained in positive territory, inching back toward today's opening levels in late trade. Crude oil climbed back above its 50-day moving average (71.16) with help from news that OPEC+ will maintain production at a reduced level through the end of the year and an Iranian threat to retaliate against Israel's recent attack. The U.S. Dollar Index reversed Friday's advance, falling 0.4% to 103.88, but stabilized just above its 200-day moving average (103.83).
• Yield Check:
  • 2-yr: -2 bps to 4.18%
  • 3-yr: -3 bps to 4.15%
  • 5-yr: -4 bps to 4.17%
  • 10-yr: -5 bps to 4.31%
  • 30-yr: -6 bps to 4.49%

• News:
  • The leader of Japan's opposition party called on the Bank of Japan to refrain from raising rates for at least six months.
  • China is taking steps toward implementing tariffs on some food and alcohol products from the EU in response to the imposition of new duties on electric vehicle imports from China. China will also subsidize domestic electric vehicle purchases through the end of the year.
  • South Korea's government appears to be on track to agree to remove the financial investment income tax.
  • The Bank of England is expected to announce a 25-bps rate cut on Thursday.
  • Discount air carrier Ryanair lowered its passenger traffic guidance for FY26, but also noted that the decline in pricing is moderating.
  • Australia's October MI Inflation Gauge was up 0.3% (last 0.1%) and October ANZ Job Advertisements rose 0.3% m/m (last 2.3%).
  • India's October Manufacturing PMI hit 57.5 (expected 57.4; last 56.5).
  • Eurozone's October Manufacturing PMI hit 46.0 (expected 45.9; last 45.0) and November Sentix Investor Confidence ticked up to -12.8 from -13.8 (expected -12.7).
  • Germany's October Manufacturing PMI hit 43.0 (expected 42.6; last 40.6).
  • France's October Manufacturing PMI hit 44.5, as expected (last 44.6).
  • Italy's October Manufacturing PMI hit 46.9 (expected 48.8; last 48.3).
  • Spain's October Manufacturing PMI hit 54.5 (expected 53.1; last 53.0).
• Today's Data:
  • Factory orders declined 0.5% month-over-month in September (Briefing.com consensus -0.4%) following a downwardly revised 0.8% decline (from -0.2%) in August. Excluding transportation, factory orders rose 0.1% on the heels of a 0.2% decline in August. Shipments of manufactured goods fell 0.4% in September following a 0.7% decline in August.
    • The key takeaway from the report is that transportation equipment orders (-3.1%), led by weakness in nondefense aircraft and parts orders (-22.7%) and defense aircraft and parts orders (-23.7%), were the primary basis for the decline in factory orders in September.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.152% (4.255%).
    • Bid-to-cover: 2.60 (2.57).
    • Indirect bid: 70.6% (64.3%).
    • Direct bid: 9.6% (18.7%).
• Commodities:
  • WTI crude: +2.8% to $71.48/bbl
  • Gold: -0.1% to $2746.30/ozt
  • Copper: +1.4% to $4.43/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0878
  • GBP/USD: +0.2% to 1.2953
  • USD/CNH: -0.4% to 7.1099
  • USD/JPY: -0.5% to 152.13
• The Day Ahead (Election Day):
  • 8:30 ET: September Trade Balance (Briefing.com consensus -$74.0 bln; prior -$70.4 bln)
  • 9:45 ET: Final October S&P Global Services PMI (prior 55.2)
  • 10:00 ET: October ISM Services (Briefing.com consensus 53.5%; prior 54.9%)
• Treasury Auctions:
  • 13:00 ET: $42 bln 10-yr Treasury note auction results