Bond Market Update

Intraday Rally Sends 2-Yr Yield To Three-Year Low

• U.S. Treasuries reached their best levels of the week on Thursday with relative strength up front sending the 2-yr yield to its lowest level since August 2022. The early portion of the session resembled yesterday's start in shorter tenors, as the market backpedaled, briefly turning negative in mid-morning trade. However, the flat line offered support, followed by an intraday rally that took place alongside broad-based weakness in equities. Regional banks were among the worst performers, eliciting memories of the regional bank crisis from two years ago, after Zions Bancorp (ZION 46.83, -7.20, -13.33%) beat expectations, but also announced a charge related to legal action. Treasuries reached their best levels in the early afternoon, remaining just below their highs into the close. Today's buying pressured yields on 10s and 30s to levels from April while the 5-yr yield stopped just shy of its September low. The 2-yr yield finished on a three-year low as the market's expectations for a 25-basis point October rate cut solidified with a renewed, though still slight, rise in expectations for a 50-basis point cut (3.2%). Crude oil settled at its lowest level since May while the U.S. Dollar Index fell 0.5% to 98.35.
• Yield Check:
  • 2-yr: -7 bps to 3.43%
  • 3-yr: -8 bps to 3.43%
  • 5-yr: -8 bps to 3.55%
  • 10-yr: -7 bps to 3.98%
  • 30-yr: -6 bps to 4.58%

• News:
  • President Trump acknowledged that the U.S. and China are in a trade war.
  • President Trump said that he will meet with Russia's President Putin in Budapest.
  • An agreement that South Korea will invest $350 bln in the U.S. as part of the trade is reportedly close to being reached.
  • French Prime Minister Lecornu survived two no-confidence motions by a slim margin.
  • European Central Bank policymaker Muller said that rates are in a good place.
  • Japan's August Core Machinery Orders were down 0.9% m/m (expected 0.4%; last -4.6%) but up 1.6% yr/yr (expected 4.8%; last 4.9%). August Tertiary Industry Activity fell to -4.3 from 1.2.
  • Australia's September employment increased by 14,900 (expected 20,500; last -11,800) and full employment increased by 8,700 (last -48,600). September Unemployment Rate rose to 4.5% from 4.3% (expected 4.3%) and Participation Rate rose to 67.0% from 66.9% (expected 66.8%).
  • New Zealand's September FPI was down 0.4% m/m (last 0.3%).
  • Eurozone's August trade surplus reached EUR1.0 bln (expected surplus of EUR6.9 bln; last surplus of EUR12.7 bln).
  • U.K.'s August GDP expanded 0.1% m/m, as expected (last -0.1%), growing 1.3% yr/yr, as expected (last 1.5%). August Construction Output was down 0.3% m/m (expected -0.1%; last 0.0%) but up 1.0% yr/yr (last 1.8%). August Industrial Production rose 0.4% m/m (expected 0.2%; last 0.4%) but was down 0.7% yr/yr (expected -0.6%; last -0.1%). August Manufacturing Production rose 0.7% m/m (expected 0.2%; last -1.1%) but was down 0.8% yr/yr (expected -1.0%; last -0.1%). August trade deficit reached GBP21.18 bln (expected deficit of GBP21.80 bln; last deficit of GBP20.65 bln).
  • Italy's September CPI was down 0.2% m/m, as expected (last 0.1%) but up 1.6% yr/yr, as expected (last 1.6%). August trade surplus reached EUR2.05 bln (expected surplus of EUR8.94 bln; last surplus of EUR7.83 bln).
• Today's Data:
  • The Philadelphia Fed survey fell to -12.8 in October (Briefing.com consensus 9.1) from 23.2 in September.
  • The NAHB Housing Market Index rose to 37 in October (Briefing.com consensus 33) from 32 in September.
  • The Treasury Budget for September showed a surplus of $198.0 billion compared to a surplus of $80.3 billion in the same period a year ago. That is the largest monthly surplus since April 2025. The September surplus resulted from receipts ($544.0 billion) exceeding outlays ($346.0 billion). The Treasury Budget data are not seasonally adjusted, so the September surplus cannot be compared to the August deficit of $344.8 bln.
    • The key takeaway from the report is that the FY25 deficit was less than the FY24 deficit. That is the good news. The bad news is that the FY25 deficit was still $1.775 trillion, even with the collection of $195 billion in customs duties (for tariffs).
  • Weekly natural gas inventories increased by 80 bcf for the second week in a row.
  • Weekly crude oil inventories increased by 3.524 mln barrels after increasing by 3.715 mln barrels a week ago.
• Commodities:
  • WTI crude: -2.1% to $57.03/bbl
  • Gold: +2.4% to $4305.50/ozt
  • Copper: -0.4% to $5.00/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1691
  • GBP/USD: +0.3% to 1.3433
  • USD/CNH: -0.1% to 7.1242
  • USD/JPY: -0.5% to 150.31
• The Day Ahead:
  • 8:30 ET: 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
  • 9:15 ET: September Industrial Production (Briefing.com consensus 0.1%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.4%)
  • 16:00 ET: August net Long-Term TIC flows (prior $49.2 bln)