Bond Market Update

Early Pressure Resisted

• U.S. Treasuries began the week in mixed fashion, as the long bond recorded a slim gain after overcoming some early pressure while shorter tenors finished with slight losses. The trading day started with losses across the curve after the weekend featured some positive news from the East Asia Summit, where Treasury Secretary Bessent and the U.S. trade team agreed on a framework for a deal with China, which means that there will likely be change to tariffs on imports from China on November 1. The lower start was followed by some more early selling, but the long bond outperformed from the beginning, eventually leading a rebound that was visible across all tenors. Treasuries climbed through the late morning even though today's $69 bln 2-yr note sale met soft demand. However, the subsequent $70 bln 5-yr note offering received much better interest. The 5-yr note and longer tenors fished the day at their best levels while the 2-yr note finished just below its starting mark. Gold and silver deepened their reversals from record highs, returning to levels from early October, while crude oil recorded a slim loss. The U.S. Dollar Index slipped 0.2% to 98.77.
• Yield Check:
  • 2-yr: +2 bps to 3.50%
  • 3-yr: +2 bps to 3.51%
  • 5-yr: +1 bp to 3.61%
  • 10-yr: UNCH at 4.00%
  • 30-yr: -2 bps to 4.57%

• News:
  • OPEC+ is leaning toward a small production increase at its next meeting, according to Reuters.
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was left at 3.9% in the latest update.
  • 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.
• Today's Data:
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.504% (3.981%).
    • Bid-to-cover: 2.59 (2.61).
    • Indirect bid: 53.7% (65.7%).
    • Direct bid: 34.8% (22.8%).
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.625% (4.061%).
    • Bid-to-cover: 2.38 (2.38).
    • Indirect bid: 66.8% (67.2%).
    • Direct bid: 23.9% (21.4%).
• Commodities:
  • WTI crude: -0.2% to $61.33/bbl
  • Gold: -2.8% to $4020.50/ozt
  • Copper: +1.0% to $5.17/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1645
  • GBP/USD: +0.2% to 1.3335
  • USD/CNH: -0.2% to 7.1083
  • USD/JPY: UNCH at 152.87
• The Day Ahead:
  • 9:00 ET: August FHFA Housing Price Index (Briefing.com consensus 0.1%; prior -0.1%) and August S&P Case-Shiller Home Price Index (Briefing.com consensus 1.9%; prior 1.8%)
  • 10:00 ET: October Consumer Confidence (Briefing.com consensus 94.2; prior 94.2)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results