Bond Market Update

Longer Tenors Lead Early Selling

• U.S. Treasuries are on track for a lower start with longer tenors expected to pace the early selling after yesterday's quiet start to the week. Treasury futures began facing pressure last evening, continuing their retreat through the night. Markets in Japan returned from yesterday's holiday, but China seized the spotlight by announcing several stimulus measures, including cuts to the reserve requirement ratio and the seven-day repurchase rate. The news gave a boost to Chinese property names and luxury goods exporters in Europe. The night also saw the release of the third consecutive contractionary Manufacturing PMI from Japan and a disappointing sentiment survey from Germany. The U.S. session will feature the release of a couple housing-related data points, followed by the Consumer Confidence report for September (Briefing.com consensus 102.9; prior 103.5). Later in the day, the U.S. Treasury will sell $69 bln in 2-yr notes.
• Yield Check:
  • 2-yr: +3 bps to 3.61%
  • 3-yr: +4 bps to 3.51%
  • 5-yr: +4 bps to 3.54%
  • 10-yr: +6 bps to 3.80%
  • 30-yr: +6 bps to 4.14%

• News:
  • The People's Bank of China will lower its reserve requirement ratio by 50 basis points, lower its seven-day repurchase rate by 20 basis points, and could also lower its loan prime rate soon.
  • The Reserve Bank of Australia left its cash rate at 4.35%, as expected.
  • Shipping giant Maersk announced a port disruption surcharge on cargo to and from the U.S.
  • European Central Bank policymaker Muller said that more rate cuts are on the way if the outlook holds, echoing recent comments from other ECB officials.
  • Japan's flash September Manufacturing PMI hit 49.6 (expected 49.9; last 49.8) and flash Services PMI hit 53.9 (last 53.7).
  • South Korea's August PPI was down 0.1% m/m (last 0.3%) but up 1.6% yr/yr (last 2.6%).
  • Germany's September ifo Business Climate Index fell to 85.4 from 86.6 (expected 86.1). September Current Assessment fell to 84.4 from 86.4 (expected 86.1) and Business Expectations fell to 86.3 from 86.8, as expected.
• Commodities:
  • WTI Crude: +2.5% to $72.12/bbl
  • Gold: -0.1% to $2649.00/ozt
  • Copper: +2.4% to $4.453/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1127
  • GBP/USD: +0.2% to 1.3369
  • USD/CNH: -0.4% to 7.0292
  • USD/JPY: +0.3% to 143.97
• Data out Today:
  • 9:00 ET: July FHFA Housing Price Index (prior -0.1%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 6.0%; prior 6.5%)
  • 10:00 ET: September Consumer Confidence (Briefing.com consensus 102.9; prior 103.5)
• Treasury Auctions:
  • 13:00 ET: $69 bln 2-yr Treasury note auction results