Bond Market Update

Lower Start Ahead of Expected Rate Cut

• U.S. Treasuries are on track for a modestly lower start after yesterday's dip. Treasury futures saw very little movement during the early portion of the overnight session, which was underscored by reduced volume again due to holidays in South Korea and Hong Kong. However, selling pressure built once the focus shifted to action in Europe, where August CPI readings for the eurozone, and the U.K. were largely in line with expectations. The U.S. session will feature a highly anticipated FOMC announcement at 14:00 ET. The market is certain that a rate cut will be announced at this time, but the size of the cut remains unknown. The fed funds futures market, however, continues pointing to a 63.0% implied likelihood of a 50-bps reduction. Today's FOMC Statement will be followed by the Bank of England's announcement tomorrow, though the BoE is not expected to implement any policy changes at this time. Crude oil is giving back yesterday's gain while the U.S. Dollar Index is down 0.1% at 100.81.
• Yield Check:
  • 2-yr: +3 bps to 3.62%
  • 3-yr: +3 bps to 3.48%
  • 5-yr: +3 bps to 3.46%
  • 10-yr: +3 bps to 3.67%
  • 30-yr: +4 bps to 3.99%

• News:
  • There was some focus on weak deposit growth at major Chinese banks during the first half of 2024.
  • A group of U.S. officials will be in Beijing tomorrow and Friday to discuss trade.
  • The Reserve Bank of Australia said that it will prioritize work on wholesale central bank digital currency rather than a retail version.
  • The Bank of France expects 2025 inflation of 1.5%, followed by 1.7% in 2026, which is below the European Central Bank's target.
  • Germany reduced its planned debt issuance for October and November by EUR2 bln.
  • Japan's August trade deficit reached JPY600 bln (expected deficit of JPY960 bln; last deficit of JPY680 bln) as imports grew 2.3% yr/yr (expected 13.4%; last 16.6%) and exports rose 5.6% yr/yr (expected 10.0%; last 10.2%). July Core Machinery Orders were down 0.1% m/m (expected 0.4%; last 2.1%) but up 8.7% yr/yr (last -1.7%).
  • Australia's August MI Leading Index was unchanged m/m (last 0.0%).
  • New Zealand's Q3 Westpac Consumer Sentiment rose to 90.8 from 82.2. Q2 Current Account deficit reached 6.7% of GDP (last 6.8% of GDP). 
  • Eurozone's August CPI was up 0.1% m/m (expected 0.2%; last 0.0%), rising 2.2% yr/yr, as expected (last 2.6%). August Core CPI was up 0.3% m/m, as expected (last -0.2%), rising 2.8% yr/yr, as expected (last 2.9%). July Construction Output was unchanged m/m (last 0.6%). August House Price Index was up 2.2% (expected 2.8%; last 2.7%).
  • U.K.'s August CPI was up 0.3% m/m, as expected (last -0.2%), rising 2.2% yr/yr, as expected (last 2.2%). August Core CPI was up 0.4% m/m, as expected (last 0.1%), rising 3.6% yr/yr, as expected (last 3.3%). August Input PPI was down 0.5% m/m (expected -0.3%; last -0.3%) and Output PPI was down 0.3% m/m (expected 0.0%; last 0.0%).
• Commodities:
  • WTI Crude: -0.9% to $70.50/bbl
  • Gold: +0.5% to $2605.70/ozt
  • Copper: +0.7% to $4.30/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1125
  • GBP/USD: +0.4% to 1.3210
  • USD/CNH: -0.3% to 7.0866
  • USD/JPY: -0.3% to 141.85
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 14.2%; prior 1.4%)
  • 8:30 ET: August Housing Starts (Briefing.com consensus 1.320 mln; prior 1.238 mln) and Building Permits (Briefing.com consensus 1.415 mln; prior 1.396 mln)
  • 10:30 ET: Weekly crude oil inventories (prior 0.883 mln)
  • 14:00 ET: September FOMC Rate Decision (Briefing.com consensus 5.00-5.25%; prior 5.25-5.50%)
  • 16:00 ET: July Net Long-Term TIC Flows (prior $96.1 bln)