Bond Market Update

A Steepening Trade

• U.S. Treasuries endured a curve-steepening trade as the front end outperformed the belly and back end of the curve. The trade was sparked by yesterday's decision by the FOMC to cut the target rate for the fed funds rate by 50 basis points to 4.75-5.00% and today's weekly initial jobless claims and Philadelphia Fed Index reports that massaged soft landing views. Most of today's weakness in the belly and back end of the curve followed those 8:30 a.m. ET releases. Treasuries also took a backseat to a risk-on rally in the stock market that sent the Dow Jones Industrial Average and S&P 500 to new record highs. The U.S. Dollar Index scored some early gains, rising as high as 101.47, when the Bank of England left its key policy rate unchanged, but those gains were relinquished as the day wore on and the index was trading flat at 100.63 as of this writing. Other policy headlines today included the Hong Kong Monetary Authority cutting its key lending rate by 50 basis points and the Norges Bank keeping its policy rate unchanged at 4.50%, saying it is likely to stay there through year end.
• Yield Check:
  • 2-yr: unch at 3.60%
  • 3-yr: +2 bps to 3.49%
  • 5-yr: +3 bps to 3.50%
  • 10-yr: +5 bps to 3.74%
  • 30-yr: +6 bps to 4.07%

• News:
  • The Bank of England maintained its bank rate at 5.00%.
  • Norges Bank left its policy rate at 4.50%.
  • Hong Kong Monetary Authority lowered its base rate by 50 bps to 5.25%.
  • European Central Bank policymaker Centeno said that the ECB may need to step up the pace of rate cuts, so inflation doesn't undershoot the target.
  • House votes against continuing resolution bill, raising specter of government shutdown starting October 1
  • Fitch Ratings forecasts slower revenue growth for U.S. states, projects further interest rate cuts through 2026
  • Concerns building about possible dockworkers strike at East Coast and Gulf Coast ports starting October 1, according to Reuters
  • Court continues to block student debt relief plan, according to CNBC
  • South Korea's August trade surplus reached $3.77 bln (last surplus of $3.83 bln) as imports rose 6.0% yr/yr (last 6.0%) and exports grew 11.2% (last 11.4%).
  • Hong Kong's August Unemployment Rate held at 3.0%.
  • Australia's August Employment increased by 47,500 (expected 26,400; last 48,900) and full employment decreased by 3,100 (last 64,700). Unemployment Rate held at 4.2%, as expected, while Participation Rate held at 67.1%, as expected.
  • New Zealand's Q2 GDP contracted 0.2% qtr/qtr (expected -0.4%; last 0.1%), falling 0.5% yr/yr, as expected (last 0.5%).
  • Eurozone's July Current Account surplus reached EUR39.6 bln (expected surplus of EUR40.3 bln; last surplus of EUR51.0 bln).
  • Swiss August trade surplus reached CHF4.578 bln (expected surplus of CHF5.05 bln; last surplus of CHF4.877 bln).
• Today's data:
  • The Q2 Current Account Deficit was -$266.8 billion versus a downwardly revised -$241.0 billion (from (-$236.7 billion) for Q1.
  • The Philadelphia Fed Index for September was a bit weaker than expected at 1.7 (Briefing.com consensus 3.0), but that was fine because it was up nicely from the -7.0 reading for August and also signified an expansion in manufacturing activity, clearing the expansion/contraction demarcation line of 0.0.
  • Initial jobless claims for the week ending September 14 decreased by 12,000 to 219,000 (Briefing.com consensus 232,000). Continuing jobless claims for the week ending September 7 decreased by 14,000 to 1.829 million.
    • The key takeaway from the report is that there is nothing in the low initial claims reading that, as Fed Chair Powell might agree, suggests the likelihood of a recession, or downturn in the economy, is elevated.
  • Existing home sales decreased 2.5% month-over-month in August to a seasonally adjusted annual rate of 3.86 million (Briefing.com consensus 3.90 million) from an upwardly revised 3.96 million (from 3.95 million) in July. Sales were down 4.2% from the same period a year ago.
    • The key takeaway from the report is that more inventory is becoming available with mortgage rates dropping, yet it is still a tight market, evidenced by the ongoing increase in the median home price.
  • The Leading Economic Index for August declined 0.2% (Briefing.com consensus -0.3%) following a 0.6% decline in July. That was the sixth consecutive monthly decline.
• Commodities:
  • WTI Crude: +1.8% to $71.08/bbl
  • Gold: +0.6% to $2614.00/ozt
  • Copper: +1.4% to $4.35/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1165 
  • GBP/USD: +0.6% to 1.3284
  • USD/CNH: -0.3% to 7.0687
  • USD/JPY: +0.2% to 142.60
• The Day Ahead:
  • Bank of Japan policy decision
  • There is no U.S. economic data of note