Bond Market Update
Updated: 11-Sep-24 15:10 ET
Treasury Market Summary
Sticky Core CPI Pressures Treasuries From 2024 Highs
- U.S. Treasuries slipped from their best levels of the year after the CPI report for August (0.2%; Briefing.com consensus 0.2%) included a slightly hotter-than-expected core reading (0.3%; Briefing.com consensus 0.2%), which kept the yr/yr core CPI at 3.2% for the second consecutive month. Treasuries started the day with gains that sent yields to fresh lows for the year, but the entire complex faced some pressure after the market received the CPI report, which essentially erased the market's hope for a 50-bps cut next week, as the implied likelihood of a 50-bps decrease fell to 18.0% from 34.0%. That sentiment was echoed by Goldman Sachs CEO Solomon, who told CNBC that he expects a 25-bps cut. The post-data selling was short-lived, with the 5-yr note and longer tenors finding support near their opening levels from yesterday. Treasuries clawed back to their opening highs alongside a weak open in equities but found renewed pressure in the late morning as stocks bounced. The pullback from highs returned action into the lower third of today's range with the market finishing near levels that were seen just before today's strong $39 bln 10-yr note sale. The U.S. Treasury will look to cap this week's strong offering slate with a $22 bln 30-yr bond sale tomorrow. Crude oil climbed off its lowest level of the year while the U.S. Dollar Index returned to little changed at 101.67 after overcoming an overnight loss.
- Yield Check:
- 2-yr: +4 bps to 3.65%
- 3-yr: UNCH at 3.47%
- 5-yr: +2 bps to 3.45%
- 10-yr: +1 bp to 3.65%
- 30-yr: +1 bp to 3.96%
- News:
- Hurricane Francine, which is currently a Category 1 hurricane, is expected to make landfall outside of New Orleans this evening.
- Germany's government began reducing its stake in Commerzbank.
- The Bank of France expects Q3 domestic growth between 0.3% and 0.4% with about 25 basis points of growth from the Olympics.
- Japan's September Reuters Tankan Index fell to 4 from 10.
- South Korea's August Unemployment Rate fell to 2.4% from 2.5%.
- New Zealand's July External Migration & Visitors rose 3.8% m/m (last 3.8%).
- U.K.'s July GDP was unchanged m/m (expected 0.2%; last 0.0%), rising 1.2% yr/yr (expected 1.4%; last 0.7%). July trade deficit reached GBP20.00 bln (expected deficit of GBP18.00 bln; last deficit of GBP18.89 bln).
- Today's Data:
- Total CPI increased 0.2% month-over-month in August, as expected. Core-CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus 0.2%), led by a 0.5% increase in the shelter index. On a year-over-year basis, total CPI was up 2.5% -- the smallest 12-month increase since February 2021. Core-CPI increased 3.2% over the last 12 months, unchanged from July.
- The key takeaway from the report is the understanding that core inflation is sticking stubbornly above the Fed's inflation goal of 2.0% which, to be fair, is oriented around the PCE Price Index. Still, the elevated core reading on a monthly and annual basis will be a focal point for the Fed and a likely reason to keep a September rate cut capped at 25 basis points.
- The weekly MBA Mortgage Index rose 1.4% to follow last week's 1.6% increase. The Purchase Index rose 1.8% while the Refinance Index rose 0.9%.
- $39 bln 10-year Treasury note auction results (prior 12-auction average):
- High yield: 3.648% (4.310%).
- Bid-to-cover: 2.64 (2.50).
- Indirect bid: 76.0% (66.4%).
- Direct bid: 13.7% (17.7%).
- Total CPI increased 0.2% month-over-month in August, as expected. Core-CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus 0.2%), led by a 0.5% increase in the shelter index. On a year-over-year basis, total CPI was up 2.5% -- the smallest 12-month increase since February 2021. Core-CPI increased 3.2% over the last 12 months, unchanged from July.
- Commodities:
- WTI crude: +2.2% to $67.30/bbl
- Gold: UNCH at $2542.90/ozt
- Copper: +1.2% to $4.15/lb
- Currencies:
- EUR/USD: UNCH at 1.1022
- GBP/USD: -0.2% to 1.3045
- USD/CNH: -0.1% to 7.1277
- USD/JPY: -0.1% to 142.30
- The Day Ahead:
- 8:30 ET: August PPI (Briefing.com consensus 0.2%; prior 0.1%), Core PPI (Briefing.com consensus 0.2%; prior 0.1%), weekly Initial Claims (Briefing.com consensus 229,000; prior 227,000), and Continuing Claims (prior 1.838 mln)
- 10:30 ET: Weekly natural gas inventories (prior +13 bcf)
- 14:00 ET: August Treasury Budget (prior -$243.7 bln)
- Treasury Auctions:
- 13:00 ET: $22 bln 30-yr Treasury bond auction results
