Bond Market Update

Early Gains Surrendered

• U.S. Treasuries finished Wednesday with losses across the curve after reversing from their mostly higher start. The trading day started with relative strength in longer tenors after a night that saw the release of another below-consensus CPI report from China and ongoing focus on the country's trade relationship with the U.S. after President Trump threatened to impose another round of tariffs in recent days. Longer tenors extended their starting gains in morning trade, briefly pressuring the 30-yr yield to its lowest level since April while the 10-yr yield approached, but stopped just above, its low from September. The 2-yr note fell past its morning low shortly before noon while longer tenors followed suit. The selling lifted yields on longer tenors back to their highs from Tuesday while the 2-yr yield stopped about two basis points below its settlement from last week. Crude oil gave back an overnight gain while the U.S. Dollar Index fell 0.3% to 98.80.
• Yield Check:
  • 2-yr: +2 bps to 3.50%
  • 3-yr: +3 bps to 3.51%
  • 5-yr: +3 bps to 3.63%
  • 10-yr: +2 bps to 4.05%
  • 30-yr: +2 bps to 4.64%

• News:
  • Treasury Secretary Bessent said during an interview with CNBC that defense companies may be asked to prioritize R&D over share buybacks.
  • South Korea's national security office met to discuss ensuring a stable supply of rare earth elements.
  • Standard & Poor's affirmed New Zealand's AA+ rating.
  • French Prime Minister Lecornu will reportedly abandon pension reform plans in an attempt to appease his opposition.
  • British Chancellor Reeves said that she is considering tax hikes and spending cuts in the upcoming Autumn budget.
  • China's September CPI was up 0.1% m/m (expected 0.2%; last 0.0%) but down 0.3% yr/yr (expected -0.2%; last -0.4%). September PPI was down 2.3% yr/yr, as expected (last -2.9%). September New Loans reached CNY1.290 bln (expected CNY1.460 bln; last CNY590 bln), September outstanding loans grew 6.6% yr/yr (expected 6.7%; last 6.8%), and September total social financing reached CNY3.53 trln (expected CNY3.32 trln; last CNY2.57 trln).
  • Japan's August Industrial Production was down 1.5% m/m (expected -1.2%; last -1.2%) and Capacity Utilization was down 2.3% m/m (last -1.1%).
  • South Korea's September trade surplus reached $9.53 bln (expected surplus of $9.56 bln; last surplus of $6.51 bln) as imports grew 8.2% yr/yr, as expected (last -4.1%) and exports rose 12.6% yr/yr (expected 12.7%; last 1.2%).
  • Australia's September MI Leading Index was unchanged m/m (last -0.1%).
  • Eurozone's August Industrial Production was down 1.2% m/m (expected -1.6%; last 0.5%) but up 1.1% yr/yr (last 2.0%).
  • France's September CPI was down 1.0% m/m, as expected (last 0.4%) but up 1.2% yr/yr, as expected (last 0.9%).
  • Spain's September CPI was down 0.3% m/m (expected -0.4%; last 0.0%) but up 3.0% yr/yr (expected 2.9%; last 2.7%). September Core CPI was up 2.4% yr/yr (expected 2.3%; last 2.4%).
• Today's Data:
  • The Empire State Manufacturing survey rose to 10.7 in October (Briefing.com consensus -1.8) from -8.7 in September.
  • The weekly MBA Mortgage Index fell 1.8% to follow last week's 4.7% decrease. The Purchase Index was down 2.7% while the Refinance Index fell 1.0%.
  • The Federal Reserve's Beige Book for October showed little overall change in economic activity since the last report. Consumer spending softened a touch while demand for leisure and hospitality from foreign tourists continued weakening. Wealthier individuals continued spending on luxury travel and accommodations. Manufacturing activity varied with some contacts reporting challenges from tariffs and falling demand. Employment was little changed while prices continued climbing.
• Commodities:
  • WTI crude: -0.8% to $58.28/bbl 
  • Gold: +1.0% to $4204.80/ozt
  • Copper: -0.2% to $5.02/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1635
  • GBP/USD: +0.5% to 1.3384
  • USD/CNH: -0.1% to 7.1315
  • USD/JPY: -0.3% to 151.28
• The Day Ahead:
  • 8:30 ET: 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)
  • 10:00 ET: August Business Inventories (Briefing.com consensus 0.1%; prior 0.2%) and October NAHB Housing Market Index (Briefing.com consensus 33; prior 32)
  • 10:30 ET: Weekly natural gas inventories (prior 80 bcf)