Bond Market Update

Staying at October Highs

• U.S. Treasuries recorded modest gains on Wednesday with most tenors finishing essentially where they started. Treasuries inched higher out of the gate after a quiet night in the futures market. There was some chatter about likely stimulus in Japan that will exceed last year's package while in Europe, the U.K.'s September CPI report showed stubborn inflation. The Secured Overnight Financing Rate rose to 4.23% from 4.16%, but that was still seven basis points shy of last week's high. Treasuries faced some early pressure, but they found support near yesterday's opening levels, bouncing off lows as equities struggled. The rebound was extended in the early afternoon thanks to a strong $13 bln 20-yr bond reopening. The post-auction bid sent the 20-yr bond and shorter tenors to fresh highs for the day while the 30-yr bond stopped a bit above its starting level. Crude oil climbed off a five-month low while the U.S. Dollar Index remained little changed near 98.90.
• Yield Check:
  • 2-yr: -2 bps to 3.44%
  • 3-yr: -2 bps to 3.44%
  • 5-yr: -1 bp to 3.55%
  • 10-yr: -1 bp to 3.95%
  • 30-yr: -1 bp to 4.54%

• News:
  • Japan's Prime Minister Takaichi is planning to propose a stimulus package that is larger than last year's to offset the impact of inflation.
  • President Trump will visit Japan early next week.
  • Japan's September trade deficit reached JPY234.6 bln (expected surplus of JPY22.0 bln; last deficit of JPY242.8 bln) as imports grew 3.3% yr/yr (expected 0.6%; last -5.2%) and exports rose 4.2% yr/yr (expected 4.6%; last -0.1%).
  • South Korea's September PPI was up 0.4% m/m (last -0.1%), rising 1.2% yr/yr (last 0.6%).
  • U.K.'s September CPI was unchanged m/m (last 0.3%), rising 3.8% yr/yr (expected 4.0%; last 3.8%). September Core CPI was unchanged m/m (expected 0.2%; last 0.3%), rising 3.5% yr/yr (expected 3.7%; last 3.6%). September Input PPI was down 0.1% m/m (expected 0.3%; last 1.1%) and Output PPI was unchanged m/m (expected 0.2%; last 0.6%). September House Price Index rose 3.0% yr/yr (expected 2.5%; last 2.8%).
• Today's Data:
  • The weekly MBA Mortgage Index fell 0.3% to follow last week's 1.8% decrease. The Purchase Index was down 5.2% while the Refinance Index rose 4.0%.
  • Weekly crude oil inventories decreased by 961,000 barrels after increasing by 3.52 mln barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.506% (4.795%).
    • Bid-to-cover: 2.73 (2.60).
    • Indirect bid: 63.6% (66.6%).
    • Direct bid: 26.3% (19.2%).
• Commodities:
  • WTI crude: +2.2% to $58.51/bbl
  • Gold: -1.1% to $4065.70/ozt
  • Copper: +0.4% to $4.99/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1610
  • GBP/USD: UNCH at 1.3360
  • USD/CNH: UNCH at 7.1263
  • USD/JPY: UNCH at 151.88
• The Day Ahead:
  • 10:00 ET: September Existing Home Sales (Briefing.com consensus 4.05 mln; prior 4.00 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +80 bcf)