Bond Market Update

Treasuries Withstand Early Pressure

• U.S. Treasuries ended the week on a slightly higher note after overcoming some early selling pressure. The trading day started with a slight loss in the 2-yr note and relative strength in longer tenors after a night that saw gains in Asian equity markets, followed by selling in Europe. Economic data released since yesterday's close included in-line inflation data from Japan and the latest policy statement from the Bank of Japan, though the central bank did not call for any policy changes at this time. Treasuries faced some pressure in morning action, but they bounced once yields on 2s and 5s approached their highs from Thursday. A steady bounce lifted the Treasury complex into positive territory in the late morning, followed by a sideways drift just below session highs. This week's action expanded the 2s10s spread by nine basis points to 16 bps, which is a dynamic that will receive increased attention if longer tenors continue underperforming in the coming weeks, since it would reflect growing worries about inflation reaccelerating. To that end, JPMorgan Chase (JPM) CEO Dimon said on CNBC that he is skeptical that inflation will "go away" easily due to huge deficits, spending on alternative energy, demographics, high military spending, and the reorganization of global trade. Crude oil recorded a slight loss, narrowing this week's gain to $2.33, or 3.4%, while the U.S. Dollar Index rose 0.1% to 100.72, trimming this week's loss to 0.4%.
• Yield Check:
  • 2-yr: -3 bps to 3.57% (-1 bp this week)
  • 3-yr: -2 bps to 3.47% (+4 bps this week)
  • 5-yr: -2 bps to 3.48% (+6 bps this week)
  • 10-yr: -1 bp to 3.73% (+8 bps this week)
  • 30-yr: UNCH at 4.07% (+9 bps this week)

• News:
  • British Chancellor Reeves is being pressured to limit spending cuts and tax increases in the Autumn budget.
  • European Central Bank policymakers Rehn and De Guindos said that incoming data will determine the pace of easing.
  • Mercedes lowered its guidance for the year due to weak demand in China.
  • The Chinese government will reportedly reduce restrictions on property purchases.
  • The People's Bank of China made no changes to its one-year and five-year loan prime rates, as expected.
  • Japan's August National CPI was up 0.5% m/m (last 0.2%), rising 3.0% yr/yr (last 2.8%). August National Core CPI was up 2.8% yr/yr, as expected (last 2.7%).
  • China's August FDI was down 31.5% YTD (last -29.6%).
  • Hong Kong's August CPI was unchanged m/m (last 1.0%), rising 2.5% yr/yr (expected 2.6%; last 2.5%).
  • New Zealand's August Credit Card Spending was down 3.1% yr/yr (last -3.7%).
  • Germany's August PPI was up 0.2% m/m (expected 0.0%; last 0.2%) but down 0.8% yr/yr (expected -1.0%; last -0.8%).
  • U.K.'s August Retail Sales rose 1.0% m/m (expected 0.3%; last 0.7%), increasing 2.5% yr/yr (expected 1.4%; last 1.5%). August Core Retail Sales rose 1.1% m/m (expected 0.5%; last 1.0%), increasing 2.3% yr/yr (expected 1.1%; last 1.4%). August Public Sector Net Borrowing reached GBP13.73 bln (expected GBP12.10 bln; last GBP3.10 bln).
  • France's September Business Survey remained at 99, as expected.
  • Spain's July trade deficit reached EUR3.20 bln (last deficit of EUR710 mln).
• Commodities:
  • WTI crude: -0.1% to $71.01/bbl
  • Gold: +1.2% to $2645.90/ozt
  • Copper: -0.5% to $4.33/lb
• Currencies:
  • EUR/USD: UNCH at 1.1164
  • GBP/USD: +0.3% to 1.3316
  • USD/CNH: -0.4% to 7.0418
  • USD/JPY: +0.9% to 143.83
• The Week Ahead:
  • Monday: Flash September S&P Global U.S. Manufacturing PMI (prior 47.9) and flash September S&P Global U.S. Services PMI (prior 55.7) at 9:45 ET
  • Tuesday: July FHFA Housing Price Index (prior -0.1%) and July S&P Case-Shiller Home Price Index (prior 6.5%) at 9:00 ET; September Consumer Confidence (prior 103.5) at 10:00 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 14.2%) at 7:00 ET; August New Home Sales (prior 739,000) at 10:00 ET; weekly crude oil inventories (prior -1.63 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: Q2 GDP -- third estimate (prior 3.0%), Q2 GDP Deflator -- third estimate (prior 2.5%), August Durable Orders (prior 9.9%), Durable Orders ex-transportation (prior -0.2%), weekly Initial Claims (prior 219,000), and Continuing Claims (prior 1.829 mln) at 8:30 ET; August Pending Home Sales (prior -5.5%) at 10:00 ET; weekly natural gas inventories (prior +58 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: August Personal Income (prior 0.3%), Personal Spending (prior 0.5%), PCE Prices (prior 0.2%), Core PCE Prices (prior 0.2%), August advance goods trade balance (prior -$102.7 bln), August advance Retail Inventories (prior 0.8%), and August advance Wholesale Inventories (prior 0.3%) at 8:30 ET; and final September University of Michigan Consumer Sentiment (prior 69.0) at 10:00 ET