Bond Market Update

Long End Slips As Fed Announces Double Cut

• U.S. Treasuries ended Wednesday on a modestly lower note, showing a limited reaction to a widely expected rate cut from the Federal Open Market Committee. The trading day started with modest losses after a night that was underscored by anticipation ahead of today's Fed decision. Treasuries started the day with modest losses that were widened during the first couple hours of action with help from a stronger-than-expected Housing Starts (1.356 mln; Briefing.com consensus 1.320 mln) and Building Permits (1.475 mln; Briefing.com consensus 1.415 mln) report for August. Treasuries remained near their lows until the FOMC announced a 50-bps rate cut that had support of all but one policymaker. During his press conference, Fed Chairman Powell said that the market should not expect this to be a new pace of rate cuts, adding that inflation can return to the 2.0% target without additional loosening in the labor market. Treasuries lurched higher in immediate reaction to the announcement, but the move was moderated during the last 30 minutes of action, returning the long bond to its afternoon low while shorter tenors finished closer to their opening levels. Crude oil gave back yesterday's gain while the U.S. Dollar Index slipped 0.1% to 100.77, hitting a fresh 14-month low in the process.
• Yield Check:
  • 2-yr: +1 bp to 3.60%
  • 3-yr: +2 bps to 3.47%
  • 5-yr: +3 bps to 3.47%
  • 10-yr: +4 bps to 3.69%
  • 30-yr: +6 bps to 4.01%

• News:
  • A group of U.S. officials will be in Beijing tomorrow and Friday to discuss trade.
  • 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.
  • There was some focus on weak deposit growth at major Chinese banks during the first half of 2024.
  • The Reserve Bank of Australia said that it will prioritize work on wholesale central bank digital currency rather than a retail version.
  • 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%).
• Today's Data:
  • Housing starts increased 9.6% month-over-month to a seasonally adjusted annual rate of 1.356 million units (Briefing.com consensus 1.320 million), bolstered by a 15.8% increase in single-unit starts. Building permits increased 4.9% month-over-month to a seasonally adjusted annual rate of 1.475 million (Briefing.com consensus 1.415 million), aided by a 2.8% increase in single-unit permits.
    • The key takeaway from the report is that single-unit starts and permits were up in every region, reflecting increased activity among builders that has been facilitated by sliding interest rates and pent-up demand.
  • The weekly MBA Mortgage Index was up 14.2% after increasing 1.4% a week ago. The Refinance Index jumped 24.2% while the Purchase Index was up 5.4%.
  • Weekly crude oil inventories decreased by 1.63 mln barrels after increasing by 833,000 barrels a week ago.
• Commodities:
  • WTI crude: -0.5% to $70.90/bbl
  • Gold: +0.2% to $2598.40/ozt
  • Copper: +0.5% to $4.29/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1140
  • GBP/USD: +0.6% to 1.3236
  • USD/CNH: -0.4% to 7.0841
  • USD/JPY: -0.4% to 141.69
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 232,000; prior 230,000), Continuing Claims (prior 1.850 mln), Q2 Current Account (prior -$237.6 bln), and September Philadelphia Fed (Briefing.com consensus 3.0; prior -7.0)
  • 10:00 ET: August Existing Home Sales (Briefing.com consensus 3.90 mln; prior 3.95 mln) and August Leading Indicators (Briefing.com consensus -0.3%; prior -0.6%)
  • 10:30 ET: Weekly natural gas inventories (prior +40 bcf)