Bond Market Update

Long End Resists Early Weakness

• U.S. Treasuries began the week on a mostly lower note, though intraday action saw a rebound off morning lows that lifted the long bond into positive territory. The trading day started with losses across the curve and notable strength in the dollar after President-elect Trump warned BRICS nations that they would face a 100% tariff on imports to the U.S. if they pursue currency alternatives to the U.S. dollar. The opening losses were widened after today's pair of economic reports on manufacturing showed a slowing pace of contraction. The final S&P Global Manufacturing PMI for November was revised up to 49.7 from 48.5 in the flash reading while the ISM Manufacturing PMI for November (48.4%; Briefing.com consensus 47.6%; prior 46.5%) also improved on a sequential basis. Treasuries reached lows in mid-morning action, but staged a solid bounce that was similar to last week's action when the market rallied into the end of November. The rebound left the long bond with a modest gain for the day while shorter tenors finished in the red. Crude oil gave back an overnight gain while the U.S. Dollar Index climbed 0.7% to 106.46.
• Yield Check:
  • 2-yr: +4 bps to 4.20%
  • 3-yr: +4 bps to 4.14%
  • 5-yr: +4 bps to 4.10%
  • 10-yr: +2 bps to 4.20%
  • 30-yr: -1 bp to 4.36%

• News:
  • France's Prime Minister Barnier is expected to face a confidence vote after puhing through a budget for 2025.
  • Standard & Poor's affirmed France's AA- rating with a Stable outlook.
  • China's November Manufacturing PMI hit 50.3 (expected 50.2; last 50.1) and Non-Manufacturing PMI hit 50.0 (expected 50.4; last 50.2). November Caixin Manufacturing PMI hit 51.5 (expected 50.6; last 50.3).
  • Japan's November Manufacturing PMI hit 49.0, as expected (last 49.2). 
  • South Korea's November trade surplus reached $5.61 bln (last surplus of $3.15 bln) as imports fell 2.4% yr/yr (last 1.7%) and exports rose 1.4% yr/yr (last 4.6%). November Manufacturing PMI hit 50.6 (last 48.3).
  • India's November Manufacturing PMI hit 56.5 (expected 57.3; last 57.5).
  • Australia's November Manufacturing PMI hit 49.4 (last 49.4) and MI Inflation Gauge was up 0.2% m/m (last 0.3%). October Building Approvals rose 4.2% m/m (expected 1.2%; last 5.8%), increasing 12.7% yr/yr (last 18.1%). October Retail Sales rose 0.6% m/m (expected 0.4%; last 0.1%). October Private House Approvals were down 5.2% m/m (last 2.2%). Q3 Business Inventories fell 0.9% qtr/qtr (expected -0.2%; last 0.5%).
  • New Zealand's October Building Consents were down 5.2% m/m (last 2.4%).
  • Eurozone's November Manufacturing PMI hit 45.2, as expected (last 46.0). October Unemployment Rate remained at 6.3%, as expected.
  • Germany's November Manufacturing PMI hit 43.0 (expected 43.2; last 43.0).
  • U.K.'s November Nationwide HPI was up 1.2% m/m (expected 0.2%; last 0.1%), rising 3.7% yr/yr (expected 2.4%; last 2.4%). November Manufacturing PMI hit 48.0 (expected 48.6; last 49.9).
  • France's November Manufacturing PMI hit 43.1 (expected 43.2; last 44.5).
  • Italy's November Manufacturing PMI hit 44.5 (expected 46.1; last 46.9). October Unemployment Rate fell to 5.8% from 6.0% (expected 6.1%). Q3 GDP was unchanged, as expected (last 0.0%), rising 0.4% yr/yr, as expected (last 0.4%).
  • Spain's November Manufacturing PMI hit 53.1 (expected 53.9; last 54.5).
  • Swiss October Retail Sales rose 1.4% yr/yr (expected 2.6%; last 1.8%). November procure.ch PMI hit 48.5 (expected 49.6; last 49.9).
• Today's Data:
  • The November ISM Manufacturing Index checked in at 48.4% (Briefing.com consensus 47.6%) versus 46.5% in October. The dividing line between expansion and contraction is 50.0%, so the November reading suggests manufacturing sector activity contracted versus the prior month but at a slower pace. This was the eighth straight month (and 24th out of 25) that economic activity in the manufacturing sector contracted.
    • The key takeaway from the report is that manufacturing sector activity overall continues to be weak, but showed a green shoot with the new orders index returning to expansion territory after seven straight months of contraction.
  • Total construction spending increased 0.4% month-over-month in October (Briefing.com consensus 0.1%) following an unrevised 0.1% increase in September. Total private construction was up 0.7% month-over-month while total public construction declined 0.5% month-over-month. On a year-over-year basis, total construction spending was up 5.0%.
    • The key takeaway from the report is that residential construction activity rebounded nicely, led by single family construction.
  • The S&P Global U.S. Manufacturing PMI hit 49.7 in the final reading for November, up from 48.8 in the preliminary reading and 48.5 in the final reading for October.
• Commodities:
  • WTI crude: +0.3% to $68.07/bbl
  • Gold: -0.8% to $2658.20/ozt
  • Copper: -0.2% to $4.13/lb
• Currencies:
  • EUR/USD: -0.8% to 1.0492 
  • GBP/USD: -0.7% to 1.2650
  • USD/CNH: +0.6% to 7.2861
  • USD/JPY: -0.1% to 149.56
• The Day Ahead:
  • 10:00 ET: October Job Openings (prior 7.443 mln)