Bond Market Update

Mixed Finish on Election Day

• U.S. Treasuries ended Election Tuesday on a mixed note with 10s and 30s reclaiming their morning losses while shorter tenors could not avoid a lower finish. The trading day started with slim losses across the curve that were widened in immediate reaction to the ISM Services PMI for October (56.0%; Briefing.com consensus 53.5%), which showed an unexpected acceleration from September's reading (54.9%). The October report reflected the strongest pace of expansion in two years, driving yields on the 5-yr note and shorter tenors past their highs from Friday. The 10-yr yield also inched above last week's high, but the market began rising off lows in late morning action, with the bounce accelerating after today's $42 bln 10-yr note sale met solid demand. Longer tenors had the best showing in the afternoon with the long bond turning firmly positive and pressuring its yield past yesterday's low. The 10-yr note also made it into the green while shorter tenors remained in the red, but still finished well above their morning lows. Voting in the presidential election is underway with some results expected tonight, though it is not clear if the winner will be declared in time for tomorrow's open. Crude oil stayed above its 50-day moving average (71.06), recording its best close in more than three weeks, while the U.S. Dollar Index fell 0.5% to 103.42, sliding past its 200-day moving average (103.83) to a level last seen in mid-October.
• Yield Check:
  • 2-yr: +3 bps to 4.21%
  • 3-yr: +1 bp to 4.16%
  • 5-yr: +1 bp to 4.17%
  • 10-yr: -2 bps to 4.29%
  • 30-yr: -4 bps to 4.45%

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was increased to 2.4% from 2.3% in the previous estimate.
  • The Reserve Bank of Australia left its cash rate at 4.35%, as expected, and Governor Bullock said that the last part of bringing down inflation is not easy.
  • Political parties in Germany are struggling to reach an agreement that would avert a collapse of the ruling coalition.
  • Ireland's Prime Minister is expected to call a general election this week.
  • China's October Caixin Services PMI hit 52.0 (expected 50.5; last 50.3). 
  • Japan's October Monetary Base was unchanged yr/yr (expected 0.3%; last 0.1%).
  • South Korea's October CPI was unchanged m/m (expected 0.2%; last 0.1%), rising 1.3% yr/yr (expected 1.4%; last 1.6%).
  • Hong Kong's October Manufacturing PMI hit 52.2 (last 50.0).
  • Singapore's September Retail Sales rose 0.4% m/m (last 0.8%), increasing 2.0% yr/yr (last 0.7%).
  • Australia's October Services PMI hit 51.0 (expected 50.6; last 50.5).
  • U.K.'s October Services PMI hit 52.0 (expected 51.8; last 52.4).
  • France's September Industrial Production fell 0.9% m/m (expected -0.5%; last 1.1%) and September government budget deficit hit EUR173.8 bln (last deficit of EUR171.9 bln).
  • Spain's October unemployment increased by 26,800 (expected 26,500; last 3,200).
  • Swiss October Unemployment Rate remained at 2.6%, as expected.
• Today's Data:
  • The ISM Services PMI increased to 56.0% in October (Briefing.com consensus 53.5%) from 54.9% in September. That is the highest reading since July 2022. The dividing line between expansion and contraction is 50.0%, so the October reading reflects services sector activity accelerating from September.
    • The key takeaway from the report is that the pace of expansion in the largest sector of the U.S. economy accelerated to a two-year high with employment activity returning to expansion after a brief contraction in September. The Backlog Index showed a deepening contraction, which could slow the pace of expansion in the coming months.
  • The S&P Global U.S. Services PMI hit 55.0 in the final reading for October, down from 55.3 in the preliminary reading and 55.2 in the final September reading.
  • The September Trade Balance Report at 8:30 a.m. ET showed a widening in the trade deficit to $84.4 billion (Brieifng.com consensus -$74.0 billion) from a revised $70.8 billion (from -$70.4 billion) in August. That widening was the result of exports being $3.2 billion less than August exports and imports being $10.3 billion more than August imports.
    • The key takeaway from the report is that the imbalance between exports and imports is indicative of a U.S. economy that is running stronger than its global counterparts.
  • $42 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.347% (4.256%).
    • Bid-to-cover: 2.59 (2.51).
    • Indirect bid: 61.7% (67.2%). 
    • Direct bid: 23.6% (17.1%).
• Commodities:
  • WTI crude: +0.6% to $71.92/bbl
  • Gold: +0.1% to $2750.20/ozt
  • Copper: +0.9% to $4.47/lb
• Currencies:
  • EUR/USD: +0.5% to 1.0928
  • GBP/USD: +0.5% to 1.3018
  • USD/CNH: -0.1% to 7.1033
  • USD/JPY: -0.4% to 151.48
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -0.1%)
  • 10:30 ET: Weekly crude oil inventories (prior -0.515 mln)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results