Bond Market Update

Mixed Finish Ahead of Extended Weekend

• U.S. Treasuries had a mixed finish to a jam-packed week that featured the release of a big batch of quarterly results, another rate cut from the FOMC, the outcome of congressional and presidential elections, underwhelming stimulus news from China, and growing political uncertainty in Germany and Japan. The news flow slowed considerably today, giving the market an opportunity to digest events of the past few days. Treasuries started the day in strong fashion, building on their rebound, which began taking shape once the 10-yr yield approached its July high (4.493%) at the outset of Wednesday's session. The early advance pressured yields on 10s and 30s to fresh lows for the week, but the market found resistance shortly after 10:00 ET with the front end leading a reversal. The reversal took shape shortly after the release of the preliminary reading of the University of Michigan's Consumer Sentiment survey for November (73.0; Briefing.com consensus 70.6), which accelerated to its highest level since April. The 2-yr note paced the intraday backtracking, facing continued pressure into the close while 10s and 30s stayed out of negative territory, defending their gains into the close. Today's action, which exerted some pressure on December rate cut expectations (to 64.6% from 69.0%), weighed on the 2s10s spread. That spread tightened by six basis points today, extending this week's compression to ten basis points, which left it at just six basis points. Crude oil fell back below its 50-day moving average (70.82) but still gained $0.86, or 1.2%, for the week even as the U.S. Dollar Index climbed 0.5% to 105.03, gaining 0.7% for the week. The Treasury market will be closed on Monday in observance of Veterans Day, but the New York Stock Exchange will be open for a full session.
• Yield Check:
  • 2-yr: +3 bps to 4.25% (+5 bps this week)
  • 3-yr: +2 bps to 4.20% (+2 bps this week)
  • 5-yr: UNCH at 4.19% (-2 bps this week)
  • 10-yr: -4 bps to 4.31% (-5 bps this week)
  • 30-yr: -7 bps to 4.48% (-8 bps this week)

• News:
  • German Chancellor Scholz is being pressured to hold a confidence vote in the coming days rather than waiting until January.
  • Bank of England Chief Economist Pill said that continued disinflation would allow for more rate cuts.
  • The leader of Japan's DPP refused to engage in budget discussions due to flagging support for the ruling coalition ahead of Monday's vote on Prime Minister Ishiba's future.
  • China will spend $1.4 trln over the next five years to support local government debt, but the announcement did not feature any support for consumption, which the market had hoped for.
  • China's President Xi will visit Peru and Brazil later this month.
  • Japan's September Household Spending was down 1.3% m/m (expected -0.7%; last 2.0%), falling 1.1% yr/yr (expected -1.8%; last -1.9%). September Leading Index rose to 109.4 from 106.9 (expected 108.9) and Coincident Indicator was up 1.7% m/m (last -3.2%).
  • France's September trade deficit reached EUR8.3 bln (expected deficit of EUR7.0 bln; last deficit of EUR7.7 bln) and September Current Account deficit reached EUR2.1 bln (last deficit of EUR1.2 bln).
  • Italy's September Industrial Production was down 0.4% m/m, as expected (last 0.0%), falling 4.0% yr/yr (last -3.2%). September Retail Sales rose 1.2% m/m (expected 0.2%; last -0.3%), increasing 0.7% yr/yr (last 0.9%).
  • Swiss Q4 SECO Consumer Climate fell to -27 from -19 (expected -33).
• Today's Data: 
  • The preliminary University of Michigan Index of Consumer Sentiment for November jumped to 73.0 (Briefing.com consensus 70.6) from 70.5 in October. In the same period a year ago, the index stood at 61.3.
    • The key takeaway from the report is that the responses were tabulated before the election results and reveal that consumers were already feeling more upbeat about their income prospects and short-run business conditions.
• Commodities:
  • WTI crude: -2.8% to $70.38/bbl
  • Gold: -0.5% to $2693.70/ozt
  • Copper: -2.7% to $4.31/lb
• Currencies:
  • EUR/USD: -0.9% to 1.0711
  • GBP/USD: -0.6% to 1.2912
  • USD/CNH: +0.7% to 7.1992
  • USD/JPY: -0.1% to 152.70
• The Day Ahead:
  • Monday: Bond market closed for Veterans Day (NYSE open)
  • Tuesday: October NFIB Small Business Optimism (prior 91.5) at 6:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -10.8%) at 7:00 ET; October CPI (prior 0.2%) and Core CPI (prior 0.3%) at 8:30 ET; weekly crude oil inventories (prior +2.15 mln) at 10:30 ET; and October Treasury Budget (prior $64.0 bln) at 14:00 ET
  • Thursday: October PPI (prior 0.0%) and Core PPI (prior 0.2%), Weekly Initial Claims (prior 221,000), and Continuing Claims (prior 1.892 mln) at 8:30 ET; and weekly natural gas inventories (prior +69 bcf) at 10:30 ET
  • Friday: October Retail Sales (prior 0.4%), Retail Sales ex-auto (prior 0.5%), November Empire State Manufacturing (prior -11.9), October Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.1%), Export Prices (prior -0.7%), and Export Prices ex-agriculture (prior -0.9%) at 8:30 ET; October Industrial Production (prior -0.3%) and Capacity Utilization (prior 77.5%) at 9:15 ET; and September Business Inventories (prior 0.3%) at 10:00 ET