Bond Market Update

Strength Maintained as Rate Cut Looms

• U.S. Treasuries climbed on Monday, pressuring yields toward lows from last week, amid renewed speculation about the potential for a 50-bps rate cut on Wednesday afternoon. Treasuries started the day with modest gains after a night of reduced trading volume due to holiday closures in South Korea, Japan, and China. Still, the market received China's key economic indicators for August, which reflected sluggish growth. In the U.S., former FOMC Vice Chair Dudley penned a Bloomberg column, calling for a 50-bps decrease to the fed funds rate range. The fed funds futures market responded accordingly, with the implied likelihood of a 50-bps rate cut rising to 61.0% from 50.0% on Friday and just 30.0% a week ago. Treasuries briefly backtracked from their opening levels after the Empire State Manufacturing Survey for September (11.5; Briefing.com consensus -4.1) showed a return to growth, but the market found support shortly after turning negative, with longer tenors leading a bounce into the afternoon. Crude oil extended last week's rebound off levels not seen in more than a year while the U.S. Dollar Index fell 0.4% to 100.76.
• Yield Check:
  • 2-yr: -2 bps to 3.56%
  • 3-yr: -1 bp to 3.42%
  • 5-yr: -2 bps to 3.41%
  • 10-yr: -3 bps to 3.62%
  • 30-yr: -4 bps to 3.94%

• News:
  • There was another attempt on former President Trump's life over the weekend.
  • New Zealand is expected to see no GDP growth in fiscal 24/25, according to NZIER.
  • Fitch affirmed Germany's AAA rating with a Stable outlook.
  • Moody's affirmed Greece's Ba1 rating and raised the outlook to Positive from Stable.
  • European Central Bank policymaker Wunsch spoke in favor of additional rate cuts while policymaker De Guindos repeated that the future rate path has not been determined.
  • Norway had its first failed auction in more than 15 years when it failed to find sufficient bids for its 12-month bill sale.
  • China's August Industrial Production was up 4.5% yr/yr (expected 4.7%; last 5.1%), August Retail Sales were up 2.1% yr/yr (expected 2.5%; last 2.7%), August Fixed Asset Investment was up 3.4% yr/yr (expected 3.5%; last 3.6%), August House Prices were down 5.3% yr/yr (last -4.9%), August Unemployment Rate rose to 5.3% from 5.2% (expected 5.2%), and August FDI was down 31.5% YTD (last -29.6%).
  • Eurozone's July trade surplus reached EUR21.2 bln (expected EUR14.9 bln; last EUR21.7 bln). Q2 Wages rose 4.5% yr/yr (last 5.2%) and Q2 Labor Cost Index was up 4.7% yr/yr (last 5.0%).
  • Germany's August WPI was down 0.8% m/m (last 0.3%), falling 1.1% yr/yr (last -0.1%).
  • Italy's August CPI was up 0.2% m/m, as expected (last 0.2%), rising 1.1% yr/yr, as expected (last 1.1%). July trade surplus reached EUR6.74 bln (expected surplus of EUR4.45 bln; last surplus of EUR5.15 bln).
  • Swiss August PPI was up 0.2% m/m (expected 0.1%; last 0.0%) but down 1.2% yr/yr (last -1.7%).
• Today's Data:
  • The Empire State Manufacturing Survey rose to 11.5 in September (Briefing.com consensus -4.1) from -4.7 in August.
• Commodities:
  • WTI crude: +2.2% to $70.22/bbl
  • Gold: -0.1% to $2608.20/ozt
  • Copper: +1.2% to $4.27/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1120
  • GBP/USD: +0.6% to 1.3204
  • USD/CNH: UNCH at 7.0994 
  • USD/JPY: UNCH at 140.82
• The Day Ahead:
  • 8:30 ET: August Retail Sales (Briefing.com consensus -0.2%; prior 1.0%) and Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.4%)
  • 9:15 ET: August Industrial Production (Briefing.com consensus 0.1%; prior -0.6%) and Capacity Utilization (Briefing.com consensus 77.9%; prior 77.8%)
  • 10:00 ET: July Business Inventories (Briefing.com consensus 0.4%; prior 0.3%) and September NAHB Housing Market Index (Briefing.com consensus 41; prior 39)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond auction results