Bond Market Update

Short End Lags

• U.S. Treasuries are on track for a lower start with shorter tenors expected to pace the early selling after a volatile night in Asian equity markets. Japan's Nikkei (-4.8%) reversed sharply from a two-month high as the market responded to news of a new prime minister who supports the Bank of Japan's tightening campaign while China's Shanghai Composite (+8.1%) cruised to its best level since May 2023, continuing its stimulus-sparked rally after China's September PMI readings showed essentially a standstill in both manufacturing (49.8) and non-manufacturing (50.0) sectors. Treasury futures inched lower during the Asian session, accelerating their retreat alongside selling in European equities, which developed despite growing expectations for an October rate cut from the European Central Bank. Economic data during the U.S. session will be limited to the 9:45 ET release of the Chicago PMI for September (Briefing.com consensus 46.2; prior 46.1). Crude oil holds a modest loss while the U.S. Dollar Index is down 0.2% at 100.22.
• Yield Check:
  • 2-yr: +4 bps to 3.60%
  • 3-yr: +3 bps to 3.51%
  • 5-yr: +3 bps to 3.53%
  • 10-yr: +2 bps to 3.77%
  • 30-yr: +2 bps to 4.12%

• News:
  • The People's Bank of China instructed commercial banks to start lowering mortgage rates in batches and cut the standing lending facility rates for maturities up to one-month by 20 basis points.
  • The French government may impose a temporary extra tax on companies that generate more than EUR1 bln in revenue.
  • China's September Manufacturing PMI hit 49.8 (expected 49.4; last 49.1) and Non-Manufacturing PMI hit 50.0 (expected 50.4; last 50.3). September Caixin Manufacturing PMI hit 49.3 (expected 50.5; last 50.4) and Caixin Services PMI hit 50.3 (expected 51.6; last 51.6).
  • Japan's August Industrial Production was down 3.3% m/m (expected -0.5%; last 3.1%) and August Retail Sales rose 2.8% yr/yr (expected 2.6%; last 2.7%). August Housing Starts were down 5.1% yr/yr (expected -3.3%; last -0.2%) and Construction Orders were up 8.7% yr/yr (last 62.8%).
  • South Korea's August Industrial Production rose 4.1% m/m (last -3.9%), increasing 3.8% yr/yr (last 5.2%). August Retail Sales were up 1.7% m/m (last -2.0%) and Service Sector Output was up 0.2% m/m (last 0.3%).
  • Australia's August Private Sector Credit was up 0.5% m/m, as expected (last 0.5%).
  • New Zealand's September ANZ Business Confidence hit 60.9 (last 50.6).
  • Germany's August Import Price Index was down 0.4% m/m, as expected (last -0.4%) but up 0.2% yr/yr (last 0.9%). Flash September CPI was unchanged m/m (expected 0.1%: prior -0.1%), rising 1.6% yr/yr (expected 1.7%; last 1.9%). 
  • U.K.'s Q2 GDP expanded 0.5% qtr/qtr (expected 0.6%; last 0.7%), growing 0.7% yr/yr (expected 0.9%; last 0.3%). Q2 Current Account deficit reached GBP28.4 bln (expected -GBP32.5 bln; last -GBP13.8 bln). Q2 Business Investment was up 1.4% qtr/qtr (expected -0.1%; last 0.6%), rising 0.2% yr/yr (expected -1.1%; last -1.8%). September Nationwide HPI was up 0.7% m/m (expected 0.3%; last -0.2%), rising 3.2% yr/yr (last 2.4%). August Consumer Credit reached GBP1.295 bln (last GBP1.231 bln) and August Mortgage Approvals reached 64,860 (expected 64,000; last 62,500).
  • Italy's August non-EU trade surplus reached EUR2.69 bln (last surplus of EUR6.04 bln). September CPI was down 0.2% m/m, as expected (last 0.2%) but up 0.7% yr/yr (expected 0.8%; last 1.1%).
  • Spain's July Current Account surplus reached EUR5.79 bln (last surplus of EUR5.02 bln).
  • Swiss September KOF Leading Indicators rose to 105.5 from 105.0 (expected 101.0).
• Commodities:
  • WTI Crude: -0.6% to $67.78/bbl
  • Gold: -0.2% to $2663.90/ozt
  • Copper: -0.6% to $4.575/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1196
  • GBP/USD: +0.2% to 1.3400
  • USD/CNH: +0.2% to 6.9934 
  • USD/JPY: +0.3% to 142.52
• Data out Today:
  • 9:45 ET: September Chicago PMI (Briefing.com consensus 46.2; prior 46.1)