Bond Market Update

Belly Leads Early Selling

• U.S. Treasuries are on track for a lower start with the belly expected to show slight relative weakness in the early going. Treasury futures slumped out of the gate on Sunday evening, briefly dipping to fresh lows around the start of the European session before rebounding. The weakness followed news from Asia, where U.S. trade reached a framework for a deal with their Chinese counterparts, strongly reducing the likelihood of additional tariffs being implemented on November 1. The positive sentiment has contributed to equity gains in Asia, Europe, and U.S. futures. The market was scheduled to receive September Durable Orders (Briefing.com consensus 0.3%; prior 2.9%) and Durable Orders ex-transport (Briefing.com consensus 0.2%; prior 0.4%) at 8:30 ET, but that report is being delayed by the ongoing shutdown. The U.S. Treasury will hold a pair of note auctions, starting with a $69 bln 2-yr note sale at 11:30 ET, followed by a $70 bln 5-yr note offering at 13:00 ET. Crude oil is under pressure while the U.S. Dollar Index is down 0.1% at 98.84.
• Yield Check:
  • 2-yr: +2 bps to 3.50%
  • 3-yr: +2 bps to 3.51%
  • 5-yr: +3 bps to 3.63%
  • 10-yr: +2 bps to 4.02%
  • 30-yr: +2 bps to 4.61%

• News:
  • President Trump announced a 10% increase in the tariffs on Canadian imports.
  • Moody's affirmed France's Aa3 rating but lowered the outlook to Negative due to risks from political instability related to the ongoing budget battle.
  • Bank of France Governor Villeroy de Galhau said that it is necessary to reduce France's deficit to 3% of its budget to stabilize public debt.
  • China's September FDI was down 10.4% YTD (last -12.7%) and September Industrial Profit was up 3.2% YTD (last 0.9%).
  • Hong Kong's September trade deficit reached HKD50.2 bln (last deficit of HKD25.4 bln) as imports rose 13.6% m/m (last 11.5%) and exports rose 16.1% m/m (last 14.5%).
  • Eurozone's September M3 Money Supply was up 2.8% yr/yr (expected 2.7%; last 2.9%). September Private Sector Loans rose 2.6% yr/yr, as expected (lats 2.5%) and September loans to nonfinancials were up 2.9% yr/yr (last 3.0%).
  • Germany's October ifo Business Climate Index hit 88.4 (expected 88.1; last 87.7). October Current Assessment fell to 85.3 from 85.7 (expected 85.5) and Business Expectations rose to 91.6 from 89.8.
• Commodities:
  • WTI Crude: -0.2% to 61.35/bbl
  • Gold: -2.5% to $4034.90/ozt
  • Copper: +1.1% to $5.178/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1645
  • GBP/USD: +0.3% to 1.3352
  • USD/CNH: -0.3% to 7.1033
  • USD/JPY: -0.1% to 152.65
• Treasury Auctions:
  • 11:30 ET: $69 bln 2-yr Treasury note auction results
  • 13:00 ET: $70 bln 5-yr Treasury note auction results