Bond Market Update

Rate-Cut Optimism Persists

• US Treasuries started the session with some safe-haven support, with stocks looking to open noticeably lower after China announced sanctions on five US subsidiaries of South Korean shipping firm Hangwha Ocean. Stocks indeed opened lower, but they forged a remarkable comeback on no specific news catalyst. Treasuries, however, held on to the bulk of their overnight gains in a bull steepener trade that was rooted in rate cut optimism. That optimism was not challenged by Fed Chair Powell in a speech to the NABE meeting, in which he signaled that the balance sheet runoff is nearing its end, that job market risks and tariff-driven price pressures are rising, and that there has been a little bit of tightening in money market conditions. The US Dollar Index faded from overnight highs; meanwhile, the probability of a 25-basis-point rate cut at the October FOMC meeting remained at a sturdy 96.7%, according to the CME FedWatch Tool.
• Yield check:
  • 2-yr: -4 bps to 3.48%
  • 3-yr: -5 bps to 3.48%
  • 5-yr: -5 bps to 3.60%
  • 10-yr: -3 bps to 4.02%
  • 30-yr: -1 bp to 4.62%

• News:
  • China announced new sanctions on five U.S. subsidiaries of South Korean shipping company Hanwha Ocean
  • China has started collecting additional port fees for U.S. cargo ships and said it will be investigating the impact of the U.S. probe into China's shipping and shipbuilding industries, according to CNBC
  • Fed Chair Powell signals balance-sheet runoff nearing end, cites rising job-market risks and tariff-driven price pressures; says starting to see a little bit of tightening in money market conditions
  • Both China and the U.S. are trying to de-escalate tensions. The Trump administration is privately pressuring China while considering a variety of options to retaliate (FXI). WSJ
  • President Trump’s 10-50% tariffs on home furnishings, furniture, and lumber officially go into effect
  • EU trade chief Maros Sefcovic says China's export controls are a critical issue for EU; tensions are increasing between EU and China. WSJ
  • Treasury Secretary Scott Bessent says President Trump is still on track to meet with Chinese President Xi in late October. Reuters
  • President Trump at press conference says he is considering tariff punishment for Spain for failing to meet NATO's new 5% defense spending goal
  • South Korean Finance Minister Koo Yun-cheol says "huge progress" is being made in trade talks with US. Reuters
  • Western companies warn that China/U.S. rare earth dispute will impact supply chains, according to FT
  • France's President Macron said he is not resigning
  • September NFIB Small Business Optimism Index 98.8 (prior 100.8)
  • Eurozone's October ZEW Economic Sentiment 22.7 (prior 30.2; prior 26.1)
  • U.K.'s September Claimant Count Change 25.8K (expected 10.3K; prior -2.0K); unemployment rate 4.8% (expected 4.7%; prior 4.7%); and August average earnings index + bonus 5.0% (expected 4.7%; prior 4.8%)
• Today's Data:
  • September NFIB SMall Business Optimism INdex 98.8 (prior 100.8)
• Commodities:
  • WTI crude: -1.1% to $58.77/bbl
  • Gold: +0.8% to $4165.10/ozt
  • Copper: -2.0% to $5.03/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1607
  • GBP/USD: flat at 1.3330
  • USD/CNH: flat at 7.1394
  • USD/JPY: -0.4% to 151.71
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -4.7%)
  • 08:30 ET: October Empire State Manufacturing (Briefing.com consensus: -1.8; prior -8.7)
  • 09:30 ET: Conversation with Fed Governor Miran at CNBC Invest in America Forum (FOMC voter)
  • 10:30 ET: EIA Crude Oil Inventories (prior +3.72M)
  • 12:30 ET: Conversation with Fed Governor Miran at Nomura Research Forum (FOMC voter)
  • 13:00 ET: Fed Governor Waller (FOMC voter) speech on Artificial Intelligence
  • 14:00 ET: Fed's Beige Book