Bond Market Update

New Tariff Threat Offers Intraday Boost

• U.S. Treasuries finished the week on a firmly higher note, sending yields toward their September lows with the 30-yr yield settling at a level not seen since early April. Treasuries got off to a solid start after an overnight advance in the futures market, which coincided with gains in other sovereign debt. There was some hope that France would avoid a snap election after it was reported that President Macron will attempt to name another prime minister soon, his sixth in under two years. Treasuries spent the bulk of the morning in a sideways range near their starting levels with the front end seeing some light pressure. The entire complex jumped to fresh highs in the late morning and built on the rally into the afternoon after President Trump took to social media to express his disappointment with China's intensifying export controls. The president said that this could prompt a big increase to tariffs on goods from China and that he no longer sees the need to meet with China's President Xi during the Asia-Pacific Economic Cooperation Forum in South Korea at the end of the month. The threat of additional tariffs spurred some notable selling in the stock market while the extension of the rally in Treasuries left yields at multi-week lows. Crude oil fell to its lowest level since early May, giving up $1.91, or 3.1%, for the week, while the U.S. Dollar Index fell 0.6% to 98.95, reversing from its best level since early August. The Treasury market will be closed on Monday in observance of Columbus Day, but the New York Stock Exchange will be open for a full session.
• Yield Check:
  • 2-yr: -8 bps to 3.52% (-5 bps this week)
  • 3-yr: -9 bps to 3.53% (-6 bps this week)
  • 5-yr: -10 bps to 3.65% (-6 bps this week)
  • 10-yr: -10 bps to 4.05% (-7 bps this week)
  • 30-yr: -10 bps to 4.63% (-8 bps this week)

• News:
  • The Bureau of Labor Statistics will release the September CPI report on October 24.
  • Fed Governor Waller said during a CNBC interview that he believes rates should be cut, but the Fed needs to be careful about it.
  • Japan's incoming Prime Minister Takaichi said that there is no immediate need to revise the government's accord with the Bank of Japan, adding that she is not in position to comment on rate hike speculation.
  • Reserve Bank of Australia Governor Bullock said that the Australian economy is in a good spot, though services inflation remains sticky.
  • The U.K.'s National Institute of Economic and Social Research believes that Chancellor Reeves should break her promise to not raise taxes in the Autumn budget.
  • Japan's September PPI was up 0.3% m/m (expected 0.1%; last -0.2%), rising 2.7% yr/yr (expected 2.5%; last 2.7%). September Bank Lending was up 3.8% yr/yr (expected 3.7%; last 3.5%).
  • New Zealand's September Business PMI hit 49.9 (last 49.9).
  • Italy's August Industrial Production fell 2.4% m/m (expected -0.3%; last 0.4%), dropping 2.7% yr/yr (expected 0.5%; last 0.9%).
  • Swiss September SECO Consumer Climate rose to -37 from -40 (expected -38).
• Today's Data:
  • The preliminary University of Michigan Consumer Sentiment reading for October checked in at 55.0 (Briefing.com consensus: 54.5) versus the final reading of 55.1 for September. In the same period a year ago, the index stood at 70.5.
    • The key takeaway from the report is that consumers are not expecting any meaningful improvement in prices or job prospects, a view that could potentially crimp their discretionary spending activity.
• Commodities:
  • WTI crude: -4.0% to $58.94/bbl
  • Gold: +0.6% to $3999.90/ozt
  • Copper: -3.9% to $4.89/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1608
  • GBP/USD: +0.3% to 1.3346
  • USD/CNH: +0.1% to 7.1402
  • USD/JPY: -0.9% to 151.74
• The Week Ahead:
  • Monday: Nothing of note 
  • Tuesday: September NFIB Small Business Optimism Index (prior 100.8) at 6:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -4.7%) at 7:00 ET; October Empire State Manufacturing survey (Briefing.com consensus -1.8; prior -8.7) at 8:30 ET; and weekly crude oil inventories (prior +3.72 mln) at 10:30 ET
  • Thursday: September PPI (Briefing.com consensus 0.3%; prior -0.1%), Core PPI (Briefing.com consensus 0.2%; prior -0.1%), September Retail Sales (Briefing.com consensus 0.4%; prior 0.6%), Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.7%), weekly Initial Claims (Briefing.com consensus 227,000; prior NA), Continuing Claims (prior NA), and October Philadelphia Fed survey (Briefing.com consensus 9.1; prior 23.2) at 8:30 ET; August Business Inventories (Briefing.com consensus 0.1%; prior 0.2%) and October NAHB Housing Market Index (Briefing.com consensus 33; prior 32) at 10:00 ET; weekly natural gas inventories (prior 80 bcf)
  • Friday: September Housing Starts (Briefing.com consensus 1.320 mln; prior 1.307 mln), Building Permits (Briefing.com consensus 1.312 mln; prior 1.312 mln), and September Import/Export Prices at 8:30 ET; September Industrial Production (Briefing.com consensus 0.1%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.4%) at 9:15 ET; and August net Long-Term TIC flows (prior $49.2 bln) at 16:00 ET