Bond Market Update

Longer Tenors Display Early Strength 

• U.S. Treasuries are on track for a modestly higher start in longer tenors while the short end is set for a flat open amid rising speculation that a 50-bps rate cut will be served up tomorrow by the Fed. Treasury futures faced some light pressure during the latter portion of the Asian session, but they bounced to highs shortly after the attention turned to action in Europe. The rally to highs met some immediate resistance that returned action toward levels from the early evening. Once again, overnight volume was reduced due to holidays in China and South Korea. China's markets will reopen tomorrow, but South Korea will remain closed, and Hong Kong will be closed as well. Economic data released overnight was headlined by poor sentiment surveys from Germany and the eurozone with Germany's ZEW Current Conditions index reaching levels not seen since the depth of the pandemic. Crude oil holds a slight gain while the U.S. Dollar Index is down 0.1% at 100.66.
• Yield Check:
  • 2-yr: UNCH at 3.56%
  • 3-yr: UNCH at 3.42%
  • 5-yr: -1 bp to 3.40%
  • 10-yr: -1 bp to 3.61%
  • 30-yr: -3 bps to 3.91%

• News:
  • The U.S. and Japan are reportedly close to agreeing on a pact to limit technology exports to China.
  • There was growing speculation that the Bank of Japan will hold off on its next rate change to study the impact of hikes that have been made so far.
  • Tokyo Steel lowered the prices of some of its products for the first time in two years.
  • European Commissioner for Internal Market Breton resigned yesterday.
  • British home improvement retailer Kingfisher reported strong results for the first half and raised its guidance for the remainder of the year.
  • Japan's July Tertiary Industry Activity Index was up 1.4% m/m (expected 0.8%; last -1.2%).
  • India's August WPI Inflation was up 1.31% yr/yr (expected 1.80%; last 2.04%). August trade deficit reached $29.65 bln (last deficit of $23.50 bln).
  • Singapore's August trade surplus reached SGD5.90 bln (expected surplus of SGD3.83 bln; last surplus of SGD6.54 bln) as non-oil exports fell 4.7% m/m (expected -3.3%; last 12.2%) but were up 10.7% yr/yr (expected 15.0%; last 15.7%). Q2 Unemployment Rate remained at 2.0%, as expected.
  • Eurozone's September ZEW Economic Sentiment fell to 9.3 from 17.9 (expected 16.3).
  • Germany's September ZEW Economic Sentiment fell to 3.6 from 19.2 (expected 17.1) and Current Conditions fell to -84.5 from -77.3 (expected -80.0).
• Commodities:
  • WTI Crude: +0.3% to $70.32/bbl 
  • Gold: UNCH at $2608.50/ozt
  • Copper: +0.2% to $4.283/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1137
  • GBP/USD: UNCH at 1.3220 
  • USD/CNH: UNCH at 7.0943
  • USD/JPY: UNCH at 140.62
• Data out Today:
  • 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