Bond Market Update

Treasuries Slip Ahead of November CPI

• U.S. Treasuries retreated for the second consecutive day, lifting the 10-yr yield back above its 50-day moving average (4.212%) ahead of tomorrow's release of November CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.3%). The market started the day in negative territory, owed in part to an early-morning release of the NFIB Small Business Optimism Index for November (101.7; prior 93.7), which showed a big post-election jump in sentiment to a level not seen since mid-2021. The lower start gave way to mostly sideways intraday trade as the market awaited tomorrow's CPI report. The 10-yr note and the long bond finished the day near their opening levels while the 2-yr note faced a bit more intraday selling. The market showed very little reaction to the release of revised Q3 Productivity (2.2%; Briefing.com consensus 2.2%; prior 2.2%) and Unit Labor Costs (0.8%; Briefing.com consensus 1.9%; prior 1.9%), even though the downward revision to unit labor costs sent an encouraging inflation-related signal. The market also held its ground through today's $58 bln 3-yr note auction, which met decent demand. Crude oil added to yesterday's advance while the U.S. Dollar Index rose 0.2% to 106.40.
• Yield Check:
  • 2-yr: +2 bps to 4.15%
  • 3-yr: +2 bps to 4.11%
  • 5-yr: +3 bps to 4.10%
  • 10-yr: +2 bps to 4.22%
  • 30-yr: +2 bps to 4.41%

• News:
  • France's Socialist party is calling for an appointment of a left-wing prime minister, threatening to withdraw support if the demand is not granted.
  • British Chancellor Reeves is calling on government departments to reduce their budgets by 5%.
  • China's Premier Li said that more unilateral policies for opening up the economy will be introduced.
  • The Reserve Bank of Australia left its cash rate at 4.35%, as expected.
  • Sanjay Malhotra was named as the new governor of the Reserve Bank of India.
  • China's November trade surplus reached $97.44 bln (expected surplus of $94.00 bln; last surplus of $95.27 bln) as imports fell 3.9% yr/yr (expected 0.3%; last -2.3%) and exports rose 6.7% yr/yr (expected 8.5%; last 12.7%).
  • Japan's November Machine Tool Orders were up 3.0% yr/yr (last 9.3%).
  • Australia's November NAB Business Survey fell to 2 from 7 and Business Confidence fell to -3 from 5.
  • Germany's November CPI was down 0.2% m/m, as expected (last 0.4%) but up 2.2% yr/yr, as expected (last 2.0%).
  • Italy's October Industrial Production was unchanged m/m (expected -0.1%; last -0.3%), falling 3.6% yr/yr (last -3.9%).
• Today's Data:
  • There was a muted reaction to the revised Q3 Productivity Report, which showed no change from the preliminary estimate of 2.2% (Briefing.com consensus 2.2%). Unit labor costs, however, were revised down to 0.8% (Briefing.com consensus 1.9%) from the preliminary estimate of 1.9% based on an equivalent downward revision to hourly compensation.
    • The key takeaway from the report is the inflation-friendly indicator of unit labor costs rising in more modest proportions in the third quarter.
  • The NFIB Small Business Optimism Index hit 101.7 in November, up from 93.7 in October.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.117% (4.209%).
    • Bid-to-cover: 2.58 (2.56). 
    • Indirect bid: 64.2% (64.8%).
    • Direct bid: 20.7% (17.9%).
• Commodities:
  • WTI crude: +0.2% to $68.59/bbl
  • Gold: +1.2% to $2718.00/ozt
  • Copper: UNCH at $4.27/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0526
  • GBP/USD: +0.2% to 1.2772
  • USD/CNH: -0.1% to 7.2604
  • USD/JPY: +0.5% to 151.93
• The Day Ahead:
  • 7:00ET: Weekly MBA Mortgage Index (prior 2.8%)
  • 8:30 ET: November CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.3%)
  • 10:30 ET: Weekly crude oil inventories (prior -5.07 mln)
  • 14:00 ET: November Treasury Budget (prior -$257.0 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results