Bond Market Update

Trump Trade Trounces Treasuries

• U.S. Treasuries responded to the election of Donald Trump as the next president with a sharp slide that was paced by longer tenors alongside a rally in the dollar. The bulk of the selling took place at the open after last night's vote not only granted a comfortable win for the former president, but also gave the Senate majority back to the Republicans, and a likely defense of their advantage in the House of Representatives. The slide in Treasuries sent yields on longer tenors back to their highs from July while equities rallied strongly with domestically oriented small cap stocks in the lead on the prospect of reduced taxes and regulations that should pave way to stronger economic growth. Treasuries added to their early losses in morning trade, finding some support after the 10-yr yield came within two basis points of its high from July (4.493%). The intraday bounce received some support from a strong $25 bln 30-yr bond auction, though participants were quick to test the market's resolve after an early afternoon push above today's opening levels. The 10-yr note and the long bond held above their opening levels into the close while the front end finished a touch below levels seen at the outset of today's trade. The jam-packed session will be followed by another busy day tomorrow that will be headlined by the latest FOMC Decision, which is expected to be a 25-bps rate cut. Crude oil faced some intraday volatility, but ultimately finished little changed, holding just above its 50-day moving average (70.98), while the U.S. Dollar Index soared 1.6% to 105.06, rallying back above its 200-day moving average (103.84) to a level not seen since early July.
• Yield Check:
  • 2-yr: +6 bps to 4.27%
  • 3-yr: +7 bps to 4.23%
  • 5-yr: +10 bps to 4.27%
  • 10-yr: +14 bps to 4.43%
  • 30-yr: +15 bps to 4.60%

• News:
  • The latest policy Minutes from the Bank of Japan showed expectations for a gradual increase in interest rates.
  • Australia signed a comprehensive economic partnership pact with United Arab Emirates.
  • The Tokyo Stock Exchange extended its session by 30 minutes.
  • Japan's October Services PMI hit 49.7 (expected 49.3; last 53.1) and November Reuters Tankan Index fell to 5 from 7.
  • India's October Services PMI hit 58.5 (expected 58.3; last 57.7).
  • Australia's October AIG Manufacturing Index hit -19.7 (last -33.6) and AIG Construction Index hit -40.9 (last -19.8).
  • New Zealand's Q3 Employment decreased by 0.5% qtr/qtr (expected -0.4%; last 0.4%). Q3 Labor Cost Index was up 0.6% qtr/qtr (expected 0.7%; last 0.9%), rising 3.4% yr/yr, as expected (last 3.6%). Q3 Unemployment Rate rose to 4.8% from 4.6% (expected 5.0%) and Q3 Participation Rate fell to 71.2% from 71.7% (expected 71.5%).
  • Eurozone's October Services PMI hit 51.6 (expected 51.2; last 51.4). September PPI was down 0.6% m/m (expected -0.5%; last 0.6%), falling 3.4% yr/yr (expected -3.5%; last -2.3%).
  • Germany's October Services PMI hit 51.6 (expected 51.4; last 50.6) and September Factory Orders rose 4.2% m/m (expected 1.6%; last -5.4%).
  • U.K.'s October Construction PMI hit 54.3 (expected 55.3; last 57.2).
  • France's October Services PMI hit 49.2 (expected 48.3; last 49.6).
  • Italy's October Services PMI hit 52.4 (expected 50.3; last 50.5).
  • Spain's October Services PMI hit 54.9 (expected 56.6; last 57.0).
• Today's Data:
  • The weekly MBA Mortgage Index was down 10.8% to follow last week's 0.1% downtick. The Purchase Index was down 5.1% while the Refinance Index fell 18.5%.
  • Weekly crude oil inventories increased by 2.15 mln barrels after decreasing by 515,000 barrels a week ago.
  • $25 bln 30-year Treasury bond auction results (prior 12-auction average):
    • High yield: 4.608% (4.392%).
    • Bid-to-cover: 2.64 (2.39).
    • Indirect bid: 62.7% (67.0%).
    • Direct bid: 27.1% (16.8%).
• Commodities:
  • WTI crude: -0.3% to $71.71/bbl
  • Gold: -2.7% to $2676.70/ozt
  • Copper: -4.9% to $4.25/lb
• Currencies:
  • EUR/USD: -1.8% to 1.0736
  • GBP/USD: -1.1% to 1.2896
  • USD/CNH: +1.4% to 7.1983
  • USD/JPY: +1.9% to 154.46
• The Day Ahead:
  • 8:30 ET: Preliminary Q3 Productivity (Briefing.com consensus 2.3%; prior 2.5%), preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.5%; prior 0.4%), weekly Initial Claims (Briefing.com consensus 222,000; prior 216,000), and Continuing Claims (prior 1.862 mln)
  • 10:00 ET: September Wholesale Inventories (Briefing.com consensus -0.1%; prior 0.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +78 bcf)
  • 14:00 ET: November FOMC Rate Decision (prior 4.75-5.00%)
  • 15:00 ET: September Consumer Credit (Briefing.com consensus $13.5 bln; prior $8.9 bln)