Bond Market Update

Sitting Tight

• U.S. Treasuries were little changed relative to Friday's settlement, yet they saw some early volatility linked to economic data. Buying interest started to build in the overnight trade following a weaker-than-expected retail sales report out of China, some weak preliminary manufacturing PMI readings out of the eurozone, and a Moody's downgrade of France from Aa3 to Aa2. The buying interest faded away, however, in the wake of the preliminary December S&P Global US Services PMI reading that reflected an acceleration in activity in the country's largest sector. While that stymied the Treasury market today, it did not deter from the overwhelming probability (95.4%, according to CME FedWatch Tool) that the Fed will cut the target range for the fed funds rate by another 25 basis points to 4.25-4.50% at the December 17-18 FOMC meeting.
• Yield Check:
  • 2-yr: unch at 4.24%
  • 3-yr: unch at 4.22%
  • 5-yr: unch at 4.25%
  • 10-yr: unch at 4.40%
  • 30-yr: -1 bp to 4.61%

• News:
  • Congressional lawmakers are close to deal that will fund government through March 14, according to Reuters
  • President-elect Trump said at a press conference that he wants to "knock out the drug industry middle man"
  • ECB President Lagarde talking up the likelihood of more rate cuts
  • Central bank policy decisions this week from Federal Reserve, Bank of England, Norges Bank, Riksbank, Bank of Japan, and People's Bank of China
  • Chancellor Olaf Scholz lost a vote of confidence; Germany moving towards snap election, according to FT
  • South Korean President Yoon Suk Yeol was suspended from office following impeachment vote. Prime Minister Han Duck-soo will become interim leader, according to New York Times
  • Moody's downgraded France's credit rating from Aa3 to Aa2 on concerns over deficit and political issues
  • Chinese regulators, though, continued to talk up 2025 fiscal and monetary policy initiatives designed to increase domestic consumption
  • German parliament to hold confidence vote on Chancellor Scholz that is expected to fail and trigger a snap election in February 2025
  • Lawmakers have disagreements over government funding bill ahead of Friday deadline, according to Politico
  • Appeals Court denied TikTok's request to pause January 19th ban, according to Bloomberg
  • President-elect Trump considering privatizing the USPS, which would require congressional approval, according to Washington Post
  • Office property values are impacting regional banks, according to Bloomberg
  • President-elect Trump suggested creating bitcoin reserve, according to Reuters; Bitcoin tops $106,000
  • Eurozone countries report weak preliminary December Manufacturing PMI readings; Services PMIs generally better than expected
  • China's November Retail Sales +3.0% yr/yr (+4.6% expected; last +4.8%); November Industrial Production +5.4% yr/yr (+5.4% expected; last +5.3%; Fixed Asset Investment +3.3% yr/yr (+3.5% expected; last +3.4%)
• Today's data:
  • NY Fed Empire State Manufacturing (Actual 0.2; Briefing.com consensus 10.0; prior 31.2). The cutoff between expansion and contraction is 0.0, so manufacturing sector activity was just about flat.
  • Prelim. December S&P Global Manufacturing PMI (Actual 48.3; prior 49.7). The cutoff between expansion and contraction is 50.0, so manufacturing activity contracted at a faster pace than the prior month.
  • Prelim. December S&P Global US Services PMI (Actual 58.5; prior 56.1). The cutoff between expansion and contraction is 50.0, so services sector activity expanded at a faster pace than the prior month.
• Commodities:
  • WTI crude: -0.7% to $70.83/bbl
  • Gold: -0.2% to $2671.10/ozt
  • Copper: -0.2% to $4.19/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0509
  • GBP/USD: +0.5% to 1.2682
  • USD/CNH: +0.2% to 7.2911
  • USD/JPY: +0.3% to 154.10
• The Day Ahead:
  • 08:30 ET: November Retail Sales (Briefing.com consensus 0.5%; prior 0.4%) and Retail Sales, Ex-Auto (Briefing.com consensus 0.4%; prior 0.1%)
  • 08:30 ET: November Industrial Production (Briefing.com consensus 0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.1%)
  • 10:00 ET: October Business Inventories (Briefing.com consensus 0.2%; prior 0.1%)
  • 10:00 ET: December NAHB Housing Market Index (Briefing.com consensus 47; prior 46)