Bond Market Update

Short End Leads Intraday Bounce

• U.S. Treasuries finished Tuesday on a mostly higher note after overcoming a soft start. The trading day began with losses across the curve after the overnight session brought news of multiple stimulus measures aimed at improving China's consumption, property demand, and stock market liquidity. The news gave an immediate boost to global equities and commodities while weighing on sovereign debt, but Treasuries were quick to bounce off their opening lows, making for a repeat of yesterday's intraday dynamic. Longer tenors underperformed at the start, and they remained behind until the close, while the short end paced the rebound off opening lows. The 2-yr note turned positive shortly after the open, leading the market's bounce as the morning went on. A disappointing Consumer Confidence report for September (98.7; Briefing.com consensus 102.9) contributed to the morning bounce that kept the market near session highs into the close. The U.S. Treasury kicked off this week's auction slate with a solid sale of 2-yr notes ahead of a 5-yr note auction tomorrow. Crude oil recovered the bulk of yesterday's loss while the U.S. Dollar Index fell 0.4% to 100.49.
• Yield Check:
  • 2-yr: -3 bps to 3.55%
  • 3-yr: -2 bps to 3.45%
  • 5-yr: -2 bps to 3.48%
  • 10-yr: UNCH at 3.74%
  • 30-yr: +1 bp to 4.09%

• News:
  • Moody's cautioned that the U.S. government must address widening deficits or risk a downgrade.
  • Shipping giant Maersk announced a port disruption surcharge on some 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.
  • 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.
  • 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.
• Today's Data:
  • The Conference Board's Consumer Confidence Index fell to 98.7 in September (Briefing.com consensus 102.9) from an upwardly revised 105.6 (from 103.5) in August. September's decline was the largest since August 2021.
    • The key takeaway from the report is that consumers' views of the current labor market situation continued to soften and became more pessimistic about future labor market conditions -- a sentiment that could weigh on consumer spending activity.
  • The FHFA Housing Price Index was up 0.1% in July after no change (revised from -0.1%) in June.
  • The S&P Case-Shiller Home Price Index was up 5.9% in July (Briefing.com consensus 6.0%) after increasing 6.5% in June.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.520% (4.652%).
    • Bid-to-cover: 2.59 (2.63).
    • Indirect bid: 67.6% (64.8%).
    • Direct bid: 19.6% (20.4%).
• Commodities:
  • WTI crude: +1.7% to $71.56/bbl
  • Gold: +0.9% to $2675.90/ozt
  • Copper: +3.0% to $4.49/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1167
  • GBP/USD: +0.4% to 1.3401
  • USD/CNH: -0.6% to 7.0164
  • USD/JPY: -0.1% to 143.36
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 14.2%)
  • 10:00 ET: August New Home Sales (Briefing.com consensus 695,000; prior 739,000)
  • 10:30 ET: Weekly crude oil inventories (prior -1.63 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results